If Gold Is Beating Stocks... What’s About to Happen To The Market?

Summary

Gold prices are soaring while the stock market is struggling, raising concerns about the dollar’s purchasing power. Over the last 5 years, gold has outperformed stocks, signaling a potential economic shift. The S&P 500’s performance against gold has drastically changed, with gold gaining value and stocks losing relative strength. This trend, similar to past economic crises, highlights worries about inflation, the weakening dollar, and global instability. The video discusses the importance of diversification in investments, especially in assets like gold, stocks, and real estate, to weather future financial storms and protect against economic volatility.

Takeaways

• 😀 Gold prices are hitting record highs, while the stock market is showing mixed performance, with rising prices but not outpacing gold's growth.
• 😀 The S&P 500 index has gained 88% over the last 5 years, while gold prices have surged by 180%, signaling that stocks are losing purchasing power compared to gold.
• 😀 In the year 2000, it took 45 ounces of gold to buy one share of the S&P 500, but by 2026, it only takes 1.4 ounces, highlighting the drastic shift in gold's relative value.
• 😀 The recent surge in gold prices compared to stocks signals concerns about the weakening dollar, inflation, and a potential economic crisis.
• 😀 The dollar is a fiat currency and has lost its gold backing since 1971, allowing the Federal Reserve to print money, which fuels inflation and dollar devaluation.
• 😀 Gold is seen as a hedge against the dollar's weakening value, while stocks are viewed as investments based on the future growth potential of companies.
• 😀 Central banks and sovereign wealth funds are driving gold's increased demand, with countries like China, Poland, and Turkey purchasing large amounts of gold to diversify away from the dollar.
• 😀 Historically, gold prices have outpaced stocks during major economic crises, including the Great Depression, stagflation in the 1970s, the dot-com bubble, the 2008 financial crisis, and the 2020 pandemic.
• 😀 The market's concern about inflation and the weakening dollar has led to gold's significant growth in value, but this also mirrors past patterns of asset inflation preceding economic downturns.
• 😀 Real diversification in a portfolio involves owning various asset classes—stocks, real estate, gold, and speculative assets like crypto—not just different types of stocks.
• 😀 Financial education and diversification are crucial for capitalizing on investment opportunities during economic volatility, as different asset classes perform better in different economic conditions.

Q & A

What is the relationship between the stock market and the value of gold?

The stock market is typically measured against the U.S. dollar. However, gold is a universal currency, not tied to any one country’s economy, which makes it a valuable comparison for measuring the dollar’s purchasing power. Gold prices have been increasing much faster than the stock market in recent years, signaling concerns about the dollar's value and inflation.

Why is gold considered a protective asset?

Gold is considered a hedge against the dollar losing value. While stocks are purchased with the expectation of future growth, gold is bought out of concern for inflation and currency devaluation. This makes gold a protective asset, especially when the dollar's purchasing power declines.

How does the S&P 500 to gold ratio reflect economic conditions?

The S&P 500 to gold ratio shows how much gold is needed to buy one share of the S&P 500. Over the past 26 years, this ratio has drastically shifted, with gold becoming cheaper relative to stocks. This shift suggests that gold is gaining value faster than stocks, which can indicate concerns about the dollar's strength and the economy.

What historical events have been accompanied by gold prices outpacing the stock market?

Over the past 100 years, gold prices have outpaced the stock market during key economic events, such as the Great Depression (1930s), stagflation (1970s), the dot-com bubble burst (2000s), the 2008 financial crisis, and the 2020 pandemic. These events were marked by economic instability, which led investors to seek safety in gold.

What role do central banks play in the rising price of gold?

Central banks, particularly in countries like China, Poland, and Turkey, have been increasing their gold purchases as part of a trend called 'de-dollarization.' By reducing reliance on the U.S. dollar, these nations are strengthening their own currencies and boosting demand for gold, which in turn drives up its price.

How do sovereign wealth funds impact the gold market?

Sovereign wealth funds, which are government-backed investment funds, have been increasing their allocation to gold. These funds traditionally invested in stocks, bonds, and startups but are now diversifying into gold as a way to hedge against economic instability and safeguard national wealth.

What is the significance of the U.S. dollar being off the gold standard?

When President Nixon took the U.S. dollar off the gold standard in 1971, it allowed the Federal Reserve to print unlimited amounts of money. This led to inflation and a weakening of the dollar. Since then, the value of the dollar has become more volatile, and gold has become a key measure of its purchasing power.

Why is gold considered a safer investment compared to stocks?

Gold is often seen as a safer investment because it retains its value during times of economic instability or inflation, unlike stocks which can fluctuate more dramatically. When the stock market struggles, especially when linked to a devaluing currency, gold tends to rise in value, providing a store of wealth.

What is the difference between buying stocks and buying gold?

When you buy stocks, you're investing in companies with the expectation that they will grow and generate profits in the future. In contrast, when you buy gold, you're primarily concerned about protecting your wealth from the declining value of the dollar, rather than expecting gold to grow in economic utility.

What does 'real diversification' mean in the context of building a portfolio?

Real diversification means spreading investments across different asset classes, such as stocks, real estate, gold, and even speculative assets like crypto. This approach helps investors weather various economic conditions, as different assets perform well in different phases of the economy, reducing overall risk.