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Can Stocks Go Up Without Gold Going Up? Answer: No

14 October 2010 6 Comments

Stocks have been going up recently and everyone is excited!  Furthermore, gold has been rising as well and often times more than stocks.  Is this a problem?  Well, it depends on your situation.

It is a problem if you are hoping that your rising stocks are going to make you more wealthy.  Stocks are deflating in real terms even if they are going up.  Huh?  Yeah, that’s right.  Stocks can be going up in nominal terms but losing value in real terms.  That is what is happening right now.

The reason both stocks & gold are going up is because both are being driven by the dollar going lower.  As the dollar goes lower, people are piling into stocks and they are piling into gold even faster.

Remember, the best performing stock market in the world over the last decade was Zimbabwe.  You made something like 30 million percent on your money – and at the same time, you lost all your money in the stock market.  How did that happen?  Because the money became worthless.

Now, I’m not saying we’re going to duplicate Zimbabwe but the point is the same.  Rising stock values are irrelevant in and of themselves.  When you price stocks in gold, something that can’t be manipulated like the dollar, stocks are in the red in the last month.  Quite a different picture, yes?

So, remember, stocks can double over the next year and you can be losing value at the same time.  Am I saying to bail on all stocks?  No, but you need to put the stock market in perspective.  Apple Inc (AAPL) might go to $600 from $300, but if gold goes to $3000, well you’re in the red on your Apple investment.

Wealth equals purchasing power.  Wealth does not equal the number of dollars you own.

If you’re wondering what my investment strategy is in light of everything said here, click here.

Happy investing.

6 Comments »

  • xfiltrate said:

    Kevin, I disagree with your statement:

    "When you price stocks in gold, something that can’t be manipulated like the dollar, "

    There exists ample evidence that not only the price of gold,but silver too, can be manipulated. For

    example, India, China,or the U S….etc

    buys or dumps hugh quantities of gold and this is reflected in the price of gold. I think it was the Hunt

    brothers years ago who totally manipulated the silver market. Your thoughts?

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