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Gold Doesn’t Care About The Stock Market

by John Rubino on July 11, 2011 · 9 comments

Once upon a time, gold and stocks were thought to be inversely correlated. That is, when the market went up, gold would go down, and when the market was down, gold would go up as investors abandoned risky assets for the safety of sound money. Put another way, stocks were for “normal” times and gold was something you owned as protection against abnormal events like long bear markets or sudden crashes. See the 2008/2009 part of the first chart below (blue line is the Dow, green line is gold) for an example of inverse correlation in action.

But post-crash, with the government borrowing trillions and running the printing press flat-out, gold and stocks became positively correlated, as newly-created credit pushed up the price of pretty much everything.

And now the relationship seems to be breaking down altogether. In the past week, stocks went up and stocks went down — and gold just went up. As this is written on July 11, the Dow is down about 1.3% for the day, while gold is up a few bucks to near its all-time high.

What, if anything, does this mean? There’s no way to know for sure, but one possibility is the expected impact of the Pan Asia Gold Exchange, which will bring gold to a new, potentially huge, market. See this King World News interview for a more complete explanation.

Or it could mean that investors have finally figured out that all possible economic outcomes are good for gold. If Washington’s prodigious borrowing sends the economy into inflationary overdrive, capital will pour into precious metals. If QE2 was a bust and the economy starts to sink, that guarantees an even bigger stimulus plan in the near future. Either way, gold is the one clear winner.

Or maybe  the marketplace is finally catching up with years of price suppression and bringing gold into line with the amount of paper currency that exists in the world. Estimates of the gold price that’s necessary to bring about this balance vary, but they’re all far higher than the current price.

  • http://www.TomBlairEA.com Thomas Avery Blair, EA

    Observation from “Main Street” here in NE Florida and SE Georgia region. The federal government, banks and Wall Street are all “shearing the sheep” and robbing away almost all of the American taxpayer’s wealth through a combination of both inflation and taxation (through rising prices and outright ponzi schemes (acts of fraud, really)) without the understanding of “the sheep.”

    Imagine what might occur if first congress establishes the category of “wealthy Americans” at $200K for singles and $250K for marrieds, raises the tax rates on those taxpayers and then through the vehicles of inflation and hyperinflation drives the dollar so low that every American hoping to own a home, have a pension plan, health insurance, etc. will be driven to earn ever-more inflated and then hyper-inflated dollars whereby the “median income” will be pushed up to or above the $200K and $250 “floors”?
    I am a 64-year-old survivalist and I intend to survive. I cannot afford gold at $1,500-plus per ounce but I can acquire a few ounces now and again of pre-1965 circulated and uncirculated US silver-content-plus per ounce coins and maybe a few .999 pure silver rounds on a weekly or monthly basis…and keep those precious metals “close to home, in my own possession, under my own control and protected with various security systems, a few deadly weapons and also with the help of a few well-armed survivalist friends.”
    What might your firm do for the poor smuck, like me, that cannot invest thousands of “fiat” dollars at a time of ever-increasing unemployment, ever-higher prices for life essentials, and a shrinking disposable income cash flow?
    I did enjoy the article…just wanted to provide a bit of food for thought.
    Respectfully submitted,
    Thomas Avery Blair, EA

    • brutlstrudl

      Make sure you have a fairly rural area you can get to and a truck big enough to get you there. Otherwise, you seem to be ahead fo the game. Good luck to you

    • Doug

      Smart man! Good luck to you!!

  • David of Jasper

    You can see where these pols and bankers are taking us, Mr. Blair.
    I am 67 and invested in gold and oil. No mortgage, living in a mountain
    Community w our own water. Lotta x- military here with sharp skills in active
    Retirement. We have our own water. Long term contracts on propane may not
    Mean much when the dollar collapses. We’ll be okay. It’s our kids and theirs that will transition to a long era of painful adjustment, so make room for them. And send ten bucks to Bachman or Paul who will let the Gov’ment default and bring in a new currency as so many countries have and will do.

  • http://www.localcoinshops.com Zachary Bitner

    I personally can’t wait to see what happens when silver and gold exchanges are set up in Asia. Wholeheartedly agree with Thomas Avery Blair on silver investments.

  • Jason Emery

    At my house, near a big city, and my property in the Appalachian hills, I have hooked up 50 gallon barrels. In town, I use the downspout of my house to fill the rain barrel. In the country, I positioned a barrel at the end of a culvert that runs under a gravel road. I go to second hand or recycle stores to buy pipe fittings and lumber for pennies on the dollar. Morons are throwing away lumber and fittings that still have the bar code on them from Home Depot.

    Once you have a secure source of water, you are way ahead of the game. Then, start planting gardens, fruit trees, etc.

    Silver, even with the sort of corrective action taking place the last couple of months, is still double where it was a year ago, and up 5 or 6 times from a decade ago. If you have silver, you will be able to buy food, fuel, or other necessities.

    Gold is nice because it is so portable. You might have to pick up and leave.

  • http://greshams-law.com Sir Thomas Gresham

    Indeed, this particular point does seem to be catching a lot of people out. For anyone who’s interested in seeing an updated & annotated chart of the Dow/Gold ratio over the past 90 years or so, see here. (It’s updated every week.)

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  • Regulation Q

    JR says: What, if anything, does this mean?

    It means in no small measure, that precious metals are being viewed by a wider segment of the global population as Real Money, not ‘commodities’. In other words, what is old is becoming ‘new’ again –

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