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Wednesday, May 7, 2014

S&P 500 VS GOLD

Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

In ELECTRICITY PRICES. SHOCKING, ISN'T IT? THANKS, NIXON, I explain that Richard Nixon, then president of the U.S., through Executive Order 11615, closed the gold window, which put Americans on fiduciary bank credits as money system and thus the world on a floating exchange rate scheme for international trade settlement. It is these fiduciary bank credits which constitute Federal Reserve Bank Units.

What counts is buying power, that is, how much real stuff you can buy with an ounce of gold or a share of the S&P 500. Since inflation is a banking phenomenon, using a FRBUs-based deflator, we can compare the true price of the S&P 500 against the true price of gold. 

Here is True S&P 500 vs True Gold in True Dollars™.




From Q4 1975, through Q1, 1989, an ounce of gold let you buy more than one share of the S&P 500. Between Q2 1989 and Q4 1990, speculators struggled between the two. 

The True S&P 500 won that struggle by Q1 1991. Stock speculators and investors did not look back to gold for a long time. 

The peak of gold bettering the S&P 500 came in Q2 of 1980 when one ounce of gold could buy 5.52 shares of the S&P 500.

From April 1, 1991, through January 1, 2009, one share 
of the S&P 500  let you buy more than an ounce of gold. The peak of S&P 500 bettering the gold came in Q3 of 1999 when one share of the S&P 500 could buy 5.55 ounces of gold.

During the Greenspan-Bernanke Great Inflation, the largest credit bubble in history, on average, one share of the S&P 500 could buy 3.2 ounces of gold.

Between Q3 2011 and Q3 2012, investors and speculators once again fought between gold and the S&P 500. Twice in that period, gold bested the S&P 500.

Since Q3 2012, the S&P 500 has been pulling away from gold. In the two years, True Gold has fallen -35.4% falling at a yearly rate of -19.6%. Meanwhile, True S&P 500 has risen 17.4% rising at a yearly rate of 8.3%.

Sooner, rather than later the U.S. economy shall stop its fall, steady and begin a long run climb. It might be another decade and another banker-fueled inflation (credit bubble) before gold becomes a good speculative play.

Since 1993, SPDR S&P 500 ETF Trust (SPY) has let speculators bet long on the S&P 500 and since 2006, ProShares Short S&P 500 ETF (SH) has let speculators bet short the S&P 500. Likewise, since 2004, SPDR Gold Trust (GLD) has let speculators bet long on gold and since 2008, Deutsche Bank AG DB Gold Short ETN (DGZ) has let speculators bet short gold.

Here are ways you can play the S&P 500 and gold with ETFs.