New Trend: Stocks Down, Gold Up
It looks like stocks and gold have officially decoupled. While stocks rallied much of the last year, gold typically rose with it. As the correction in stocks has begun, gold is still near its highs. Gold is increasingly being viewed as a monetary asset or a currency versus an investment. As public confidence in the “system” erodes, gold will explode (define the “system” as government policy, government stimulus, an orderly stock market, a non-corrupt, functioning financial system, sovereign debt, etc.).
The decoupling of gold with other risk assets strongly supports my theory I’ve been discussing for a couple years now of the long term trend of the Dow moving towards a 1 to 1 ratio with the price of gold. Most people shrug this off as impossible, but I believe plenty of evidence supports this theory. If this ratio (or even a 2 to 1 ratio) materializes, many of the things we assume about the financial system, investing, retirement planning will be completely shattered. It would mean a failure of the Keynesian policies to prop up a failed economy. It would mean a failure of the investment adviser community. It would mean a failure of Wall St. Gold is the worst enemy of the established financial system. While the establishment will continue to discourage investing/owning gold, it will continue to prove to be the only true safe haven for those of us that are skeptical of the economic recovery and of the world governments attempts to hold this thing together. The reality is that continuing to ignore gold and putting your faith in Barack Obama Inc. is the riskiest move of all. Good luck to you.