Historically, low gold prices have translated into above-average gains for the SPX
Gold has been skimming multi-year lows for the past few days, and mining stocks haven't done any better. But what might that mean for the broader market? With that question in mind, I decided to enlist the help of Schaeffer's Senior Quantitative Analyst Rocky White to see if he could shed any light on the implications of "cheap" gold for the S&P 500 Index (SPX).
Below, you'll see a chart that shows how the SPX has performed across various time frames, following at least four-year lows on gold -- a signal we got last Friday, for the 10th time since 1980. In order to qualify, signals had to be at least six months apart.
Looking at the data, four-year lows have tended to be bullish for the SPX -- especially over the long term. In the month following the last nine signals, the SPX averaged a gain of 1.6%, and was positive two-thirds of the time. By contrast, the index's anytime one-month return is just 0.8%, and positive 62% of the time.
Even more impressive, going out to the six- and 12-month columns, the SPX has been positive 100% of the time following prior signals, with an average advance of 8.3% and 18.2%, respectively. By comparison, over a typical six-month window, the SPX is positive 73% of the time, with an average gain of 5%; and over 12 months, it's higher 78% time, with a typical advance of 10%.
The last time we saw a four-month low in gold was last November, and as the chart below demonstrates, the returns have been positive once again -- with the one-year result still to be determined. Interestingly, prior to that November signal, we hadn't seen a four-year low in gold for more than 15 years -- by far the longest span we've observed over roughly 35 years' worth of data.
