The value of gold relative to U.S. equities has plunged to the lowest in more than four years even as global debt surges.
The CHART OF THE DAY shows the ratio between the Standard & Poor’s 500 Index and the price of gold for immediate delivery has dropped by almost a third in the past year, and on May 17 touched 0.815, the lowest since November 2008. The ratio was at 0.852 on June 14.
Gold prices fell 17 percent this year, while the S&P 500 jumped 14 percent, reaching a record on May 22. The precious metal is heading for its first annual decline since 2000 amid concern that the Federal Reserve will act to curb stimulus measures as a quickening economic recovery in the U.S. prompted investors to turn to equities.
“We’ve had a lot of money flow coming into equities, but now you see that, historically, the S&P 500 may be a bit rich if you’re actively managing your portfolio,” said Mike McGlone, the New York-based director of research at ETF Securities Ltd., which provides exchange-traded products including some backed by precious metals. “Fundamentals have not changed much in gold, except that we’ve clearly had a correction. Relative to one major financial asset, gold may be considered attractive.”
Bullion surged 58 percent since the end of 2008. The value of global sovereign debt has almost doubled in that time to more than $23 trillion, a Bank of America Corp. index shows. The International Monetary Fund said June 14 it sees the Fed maintaining its $85 billion monthly bond purchases until at least the end of this year and urged the central bank to carefully manage its exit plan to avoid disrupting financial markets.