It seems that when the stock market fell, investors sold their gold holdings to raise cash and cover margin adjustments. In fact, this is often the case, since gold is a safe haven, so when traders get defensive, they may prefer gold to relatively risky stocks. The NYSE Arca Gold Miners Index is a modified market capitalization-weighted index comprised of publicly traded companies that are primarily engaged in gold and silver mining. In fact, bulls in gold added substantial positions to bullion backed ETFs in December, as the metal was headed for its biggest monthly advance in two years.
I chose an almost 20-year comparison between a gold-silver index against the S& P 500 and the gold-silver index performed much lower. As can be seen in the following graphs, gold surpassed the S&P 500 index in the month of December, the fourth quarter and the year. In the coming weeks, I'll be doing more research on investments in gold and silver, as well as precious metal mining stocks and ETFs. However, I firmly believe that gold is an asset class for risk management, especially if greater political and economic uncertainty awaits us.
I saw a video on YouTube in the middle of this year and made a note on my blog to remind me that I must revisit gold at some point. In other words, a low ratio tends to indicate that gold is overvalued compared to stocks, while a high ratio will indicate that gold is quite undervalued compared to stocks. The prices of gold, precious metals and precious minerals are subject to substantial price fluctuations over short periods of time and may be affected by unforeseen monetary and international policies. The FTSE gold mine index covers all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces per year and that earn 75 percent or more of their revenues from extracted gold.
The best example of a negative link between the 26P 500 and gold may be the Great Recession, as seen in Figure 2.In short, the lower the ratio, the more expensive gold will be relative to the S&P 500 index and the higher the ratio, the cheaper gold will be compared to the S&P 500 index.