Aftermath of the S&P Downgrade

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Aftermath of the S&P Downgrade

August 9, 2011 Leave a comment Go to comments

The Morning After in Pictures

Gold Gap Up (a break between prices on a chart that occurs when the price makes a sharp move up with no trading occurring in between) on first trading day after S&P downgraded the US credit rating. This is a very rare event. It closed at another all time high of $1719.80, up 3.3%. Another very rare event (any close above 2% is very very rare).Similar price action is seen in all major currencies - a classic picture of the flight to safety - from fiat currencies to hard currency.

Dow plunged 634 points (5.55%) to close at 10,809.85. That’s a loss of 15% from its July high. It was the worst day for the market since the financial crisis in the fall of 2008. So, where did the money go?Ironically, it went into US Treasury bills! Investor fears were so extreme and the sums of transferred money so vast that the yields on the short-term Treasuries were negative, meaning investors were paying the US government to hold their money. A tiny portion would have gone into gold.

Gold/Dow Ratio. Combining the 2 charts above, we have a Gold/Dow ratio displaying a spectacular gap up closing at an all time high of 0.1591. It now takes that number of units of Dow to purchase one ounce of gold, which appreciated by over 35% against the Dow over 5 weeks. Put another way, and stepping back to August 2008, the Dow/Gold Ratio chart below shows how much you’d have “lost” if you’d parked your savings in stocks instead of gold. It now takes only 6.29oz of gold to purchase one unit of Dow, compared to 13.3oz 3 years ago, a drop of 53%.

Dow/Gold Ratio

The Dow has lost 58% against Gold over three years

Dow/Silver Ratio

The Dow has lost 74% against Gold over three years

Silver has not been running as fast as gold recently. This flight to safety money usually starts to chase gold, with silver catching up later. Gold/Silver Ratio currently stands at around 44, and that offers a great opportunity to stack up on silver.

Gold/Silver Ratio

Gold/Silver Ratio is expected to head South

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Categories: Articles by PoliticalMetals Tags: Gold, S&P 500, Silver, Stocks, Treasury, USD

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August 9, 2011 at 10:28 PM | #1

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