Even with gold, it is sometimes referred to as a foundation, but this bump is used here in a slightly different sense of the word, not an action. That’s also why I only pay attention to gold here, but today I’ll make an exception. So let’s fully focus on the ratio of gold prices to stocks. The latter will go through certain long-term cycles, today for a note on them and how the actual share prices and gold prices should develop as models.
1. Cycle: The following chart shows the ratio of gold prices to the US stock index and thus the prices of these two assets. Gold on shares lost a long time after the seventies, the cycle turned upwards after 2000, it turned around for a year after 2008. Real rates are a significant driver of gold prices, their decline should push prices up and vice versa. However, the same should be true of real and nominal shares, the required return should increase, and prices and valuations should therefore fall.
Source: X
I do not see any simple explanation of the described cycle for the composition of rates. In relation to the relative prices of shares and gold, the point of view can also be changed, according to which it shows a pessimistic preference and aversion to financial and real assets, if investors prefer real assets, gold should fall and vice versa. I would add here, however, that the definition of real and financial assets is very loose here: Although shares are classified as financial assets, they are actually the ownership of real assets. So we would speak more about the popularity shifts between the two types of real assets.
2. Model trend: When we look at the above swings, we can think of the question of how the stock price should behave in relation to the price of gold models. It can be grasped in a number of ways, I have analyzed a bit here before the ace, how the prices of the models should behave in relation to the money cycle and the product. This can be avoided in the following way: Let’s assume that the product in the economy would grow by 2% and prices by 2% annually (according to the central bank). The nominal growth rate of the economy would thus be 4%. In this model, the central bank would increase the rate so that the final money supply increases by 4% per year, thus 2% real growth and 2% increases the price level (the speed of money circulation and multiplication does not change).
In an efficient market, shares could grow in the long term at a rate that meets the return requirements (that is, in the special case that they do not pay dividends on the day). In our case, the risk-free income will first be 4% (corresponding to the nominal growth of the economy). The required return is then the risk premium. And they would actually show how much faster the shares will grow compared to the nominal growth of the economy (including the supply of money). If the risk premium of the stock market were, for example, 5.5%, the economy would grow by 4% per year, the money supply by 9.5% (4% + 5.5%). That is, first by 5.5% faster (dividend income would reduce this compound).
The price of gold could thus grow by 4% in this model – to match the growth of the money supply. Or only by 2% – it would only reduce inflation. In both cases, it would appear that stocks will rise again faster and the gold/stock ratio will trend downward. And then, in the case of taking a meme, he made assumptions. What kind of practice is shown by that graph, but I take it for granted that it is bad for the chosen time period. A type of chart shows stock and gold growth since 1988, along with volatility as an approximation of risk:
Patria.cz is the investment portal of the company Patria Finance as with real-time data on domestic and foreign exchange capital markets. We provide online information and analytical support in the field of finance, macroeconomics and investments. Of course, current investment tips and long-term investments are recommended. Shares, currencies, commodities, investments, recommended – at a glance in one place.
