The Stock Exchange has made sparks for 10 years, especially in the United States. Gold, much less. As a result, the Gold / S & P 500 ratio (broad equities index representative of Wall Street, more closely followed than the Dow Jones), which measures the comparative evolution of the price of gold and American equities, is at the lowest since 2005 (see lower part of the first graph below), notes Arnaud du Plessis, thematic equity manager specializing in gold and natural resources at CPR Asset Management. “Rarely has the valuation of the equity market been so high. The deflation observed since the 1980s and the drop in rates observed since have supported this trend, ”observes the expert.
Capital notes for its part that in terms of the various valuation multiples (gauge of the degree of high cost of shares), American equities are historically expensive, regardless of the indicator used. For example, the market value of stocks listed on Wall Street is more than 3 times turnover, compared to less than 0.9 during the major stock market trough of 2009. And Shiller’s PER (adjusted economic cycle PER, which aims to free itself from the impact of the economic cycle by relating the market capitalization of listed companies to the average of their profits over the past 10 years, taking inflation into account) already emerges from 40 (see illustration above): the highest peak in 140 years, with the exception of the dot-com bubble of the late 1990s. Finally, Wall Street’s market capitalization relative to US GDP, an indicator appreciated by Warren Buffett, recently registered a historically high level!
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For its part, gold, considered a safe haven, has been somewhat neglected since 2011, a period favorable to risky assets (such as equities). The fact remains that recently, gold, the traditional bulwark against inflation, has attracted investors eager to protect themselves from a high rate of rise in consumer prices (more than 6% in the United States and more than 5%, or even 6%, expected in Germany).
Low real rates (rates minus inflation) have been carrying gold lately. It must be said that gold does not generate income, so it benefits from favorable trade-offs when real rates are under pressure. While the precious metal has – in trend – lost ground against US equities since 2011, “the new fact is the possible return of inflation which, if it becomes clearer, could be a game-changer in favor of gold ”, Judge Arnaud du Plessis.
The expert considers his margin of appreciation to be significant. Especially since if we look at the evolution of “deflated” gold (the price of gold corrected for inflation), “despite the increase in the price per ounce observed in recent years, gold n ‘has never recovered its 1980 level (a major peak, Editor’s note) in constant dollars, ”he underlines.
