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I was playing around with some data and I came with an interesting stat: All of the stock market’s gain since 1970 has come when the price of gold is below $455.

OK, now let me explain a little. I took two monthly files; one with the closing price of gold from 1970 though this past May. The other with the dividend reinvested index for the S&P 500 over the same time period.

I then looked at how well the S&P did based on the closing price of gold for the previous month. The results show that the index was net flat whenever gold closed the previous month higher than $455.50.

There were basically three times when gold gave its sell signal. The first was in late 1979 to mid-1981. The second came in mid-1987 to mid-1988 (very good timing there!). The third has been continuous since September 2005. For gold to give another buy signal, it would have to plunge by more than 50%.

Let me add that I don’t see this as a market-timing tool. I just think it’s interesting how the market has behaved.

Posted by edelfenbein at August 20, 2009 8:08 AM