Sunday, July 9, 2017

charts: Equities vs Commodities

In the In the 9 yrs following the 1st green circle, gold rose from $42 to $800.  
In the 12 yrs following the 2nd, gold rose from $300 to $1900. 

Saturday, July 8, 2017

Equities Expensive and Commodities Cheap?

Incrementum AG (Jun 1, 2017) - In a historical context, the relative valuation of commodities to equities seems extremely low. In relation to the S&P500, the Goldman Sachs Commodity Index (GSCI) is currently trading at the lowest level in 50 years. 


The chart outlines the valuation of the GSCI relative to the S&P500. The GSCI comprises 24 commodities from all commodity sectors and serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. If the ratio is low (green circles), it means that commodities are cheap relative to shares. If the ratio is at a high level (red circles), like during the Gulf Crisis in 1990, the prices of raw materials are relatively expensive.

The current ratio is 0.87 while the median is at 4.1. A return to the median gives 371% potential, but in most cases a rally doesn't stop at the median. In absolute terms, the scene seems set for a new bull market for commodities. According to Ned Davis Research, commodities gained 217% on average over the period of a bull market. 




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3 comments:

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