Choose a sector of the NYSE and explain its relationship to Gold spot prices?

Mark: Choose a sector of the NYSE and explain its relationship to Gold spot prices?
I need help with this question, I know that financials are probably the most affected (Other than mining)… Do any of you guys have some original ideas on the subject? Any help would be apreciated… Thanks!

Answers and Views:

Answer by Diana
Well it looks like a terrifying question but actually it isn’t.

1) All investors look at the usual stuff e.g. PE Ratio,PB ratio, Return on Equity(ROE) and dividend yields etc.of their chosen sector BUT

2) these do not give the overall picture of what is happening in the market overall so for a better insight you would look at say the Dry Ship Index (e.g.overseas shipping activity). You could also look at the Copper index because of its massive use in global construction. So, if there is growth in base and other metals then you can have a forward look at the type of industrial companies that are going to benefit.

I’m leading to the point….

3) However, the most accurate indicator of the stock markets value is the price of gold (i.e. spot) in relation to the stock market value. The gold spot price has a much higher standard of value than the $ .

So: say 1oz gold costs $ 800 can buy 1 unit of NYSE($ 800) then the Ratio =1/1
but say when stock market prices peak (e.g. 2000) i unit was valued at $ 14000 and gold was only $ 260 per ounce. So then it would have cost you 53 ounces of gold to one unit compared with the 1/1 ratio above.

In 2009 when stocks were low e.g. lows of 6000,gold traded at $ 800 per ounce so the ratio was 7.5/1.

Therefore valuing any part of a sector in relation to gold offers a more reliable indicator of valuation. Buy stocks when the ratio of stocks to gold is under 10 times and buy gold and sell stocks when the ratio moves higher. Using the gold/stock ratio will help you choose your portfolio better.

Hope that helps a bit! XXX