Unprecedented Correlation Between S&P500 and Gold

Over the last couple of years an unprecedented correlation has developed between the stock market and gold which hasn't been seen in over 40 years.

I just found a chart on the Web that summarizes my thoughts on the run-up in the current market. The chart which plots the price of gold versus the S&P 500 since 1971 shows that for the most part these two investments have run counter to each other (you can see the chart by clicking on my profile and going to my page). In the 70's gold soared while the market stayed flat. Inflation no doubt played a part in that. In the 80's and 90's during the current bull-market, the market soared and gold performed poorly.

In 2000, as the stock market was melting down, gold started its ascent. And that's where it gets interesting. Since 2002, roughly the start of the Iraq war, both gold and the stock market have moved higher in tandem, an almost unprecedented occurrence.

Looking at this chart, it's not hard to see that at some point the two asset classes have to diverge. The question is which one, when, and what will the catalyst be.

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Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • Anonymous

    July 20, 2007

    Great article. The chart is a little scary. You are right that something needs to break.

  • Anonymous

    July 20, 2007

    We are in a period of extreme liquidity where everything is appreciating in value, except for real estate (which I believe is only declining in the US).

  • Goldie

    May 15, 2008

    This is very interesting. I'd like to see this chart updated to reflect what has happened over the last six months. I suspect you'll see that both investments have dropped.

  • Angel 62

    April 03, 2010

    And how this chart corelates against printed $$$s?

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