Value or Illusion?

Gold is forging ahead in the number of U.S. dollars that it takes to buy 1 ounce of the metal, but does that mean that gold is "worth" more? For the last several months it appears that gold have been coupled to the general rise in the overall U.S. stock market as measured by the level of the SP500 index. In the chart above, I found it remarkable that the gold price and SPX seemed to track so directly for that period. It almost seemed that as the stock market rose, there was a corresponding hedge into gold which acted as a counter balance or protective investment going on elsewhere in the world. That may have been a correct assumption if you accept that central banks around thw world are buying gold to place in their treasuries - buying the metal as a storehouse of value - buying the metal with U.S. dollars which we now see may be losing their value.

So the question is "does the U.S. stock market represent a way to maintain the spending power (let alone increase the spending power) of your dollars?" If you ask the central bank of India which just purchased several billion dollars of gold for its treasury, I suspect they might answer "well we're not sure, so we are hedging our dollar position in U.S. treasury debt by replacing some of those dollar denominated investments with gold." This may explain the recent decouplingof the gold price and the SPX shown in the chart, the movement of the SPX off the several months of uptrend (higher highs and higher lows) and the weakness of the U.S. dollar. Sphere: Related Content