Gold Now Favored Over the Key Asset Classes of Stocks

Technical Scoop (02/14/2009)
Certainly if gold were once again to become a reserve currency the current price is probably too low. Gold is the one asset class that is actually up this year. Consider the following performances since the beginning of 2009:

All losers
  • Dow Jones Industrials – down 9.5%
  • Dow Jones Transportations – down 14.9%
  • S&P 500 – down 7.7%
  • NASDAQ – down 3.0%
  • TSX Composite – down 3.0%
  • TSX Financials – down 9.6%
  • US 10-Year Treasury Bonds – up 50 basis points or 22% in yield
  • Oil – down 19.4%
  • XOI Oil Index – down 5.2%
But on the other hand
  • Gold – up 6.8%
  • Silver – up 19.9%
  • Gold Bugs Index HUI – up 5.0%
  • TSX Gold Index – up 8.0%
  • BMG BullionFund – up 15.4%
  • Central Fund of Canada (CEF.A/T) – up 6.5%
  • SPDR Gold Trust (GLD/NY) – up 7.4%
Against virtually all asset classes, gold has outperformed since January 1. We included the BMG BullionFund, Central Fund of Canada and GLD as they are alternative ways of holding bullion. But there are differences between each of them and there are some other alternatives, as well. But these are the primary vehicles as we see it.

After a number of years of oil outperforming gold the market shifted clearly in favor of gold this past year. With the collapse in oil prices and gold holding up and rebounding strongly from its lows in November the ratio has shifted clearly in favor of gold. We are now back into levels seen throughout the 1980s and 1990s. While there will be periods of oil strength vs. gold, the message is now clear that one should hold gold over oil.

For almost 20 years from 1980 to 1999, bonds were clearly favored over gold. That began to change in 1999/2000, and ever since it has been beneficial to hold gold over bonds.

The collapse in silver prices from over $20 to below $9 last year saw a sharp rebound in the gold/silver ratio favoring gold over silver. This rally now appears to be over and the past several weeks have seen a shift back to favoring silver over gold. Investors should also maintain some exposure to silver. At a sharply lower price it gives true meaning to the term "poor man's gold."

We believe we are at or near the cusp of a period that could see the best gains in gold (and silver). Gold is money and investors need exposure to it to protect their assets in a period where things are going to get a lot worse before they get better.

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