Over very long periods, Gold (and commodity prices) have an inverse relationship to the US Stock market. When Gold and commodity prices are in a secular bull market, the US stock market is in a secular bear market and vice versa. However, over shorter periods, such as a few years, the relationship between these asset classes can take many forms.
There have been multiple periods in which the stock market and hard assets have gained together, declined together, and trended in opposite ways. Nevertheless, our focus is on the secular trend because it is shifting in favor of Gold and other hard assets. The current and most recent period has been similar to the 1960s, but precious metals have not performed as well as they did then.
A major reason is that the US stock market has remained in a secular bull market and has yet to slow down the way it did in the 1960s. Also, gold stocks face far more competition for investor capital today than 60 years ago. Investors can buy emerging markets, foreign currencies, TIPS, and Gold ETFs.
None of these options were available 60 years ago. The real issue for precious metals is that they have yet to outperform the stock market consistently, but once they do, we can confirm the start of a new secular bull market. In figure 2.4, we plot the S&P 500 with two ratios: the gold stocks against the S&P 500 and Gold against the S&P 500. As exhibited over the last seven years, Gold and gold stocks can only be in a real bull market if they are outperforming the stock market.
These ratios show distinct similarities between today and the 1960s, but they need to break past their 2016 and 2020 highs (blue lines resistance) to kick off a secular bull market in precious metals. I should also note that Barron's Gold Mining Index today is stronger than most gold mining indices, which better reflect current share prices.