The "suffering index" may remain high, it is recommended to pay attention to the investment opportunities in the gold sector. We have analyzed the historical trend of the "suffering index" (US unemployment rate + US inflation rate, the same below) and the S & P 500 / gold since 1958. It is found that the "suffering index" and the S & P 500 / gold trend are well matched, and the logic behind it is that the "suffering index" trend better reflects the economic cycle. And when the S & P 500 / gold relative "suffering index" is in the overvalued range, the future S & P 500 yield is significantly lower than the gold yield, reflecting the existence of a certain Bubble in the stock market and the risk in the market. At present, the US "suffering index" is higher again, with a historical quantile of 78%, and the S & P 500 / gold is somewhat overvalued relative to the "suffering index". Gold prices may still have room to rise in the future, so it is recommended to pay attention to investment opportunities in the gold sector.
The "suffering index" fits well with the S & P 500 / gold, and the current "suffering index" rises again. According to the calculation of historical data since 1958, we find that the "suffering index" fits well with the S & P 500 / gold. The logic behind it is that the "suffering index" better reflects the economic cycle, while in different economic cycles, the performance of the two major categories of assets of gold and stocks are different, that is, under normal circumstances, Stocks performed better in the recovery phase and gold performed better in the stagflation phase. Data show that at the beginning of 2020, with the global novel coronavirus epidemic outbreak, the "suffering index" jumped and rose. Since then, with the support of loose monetary and fiscal policies, the unemployment data has improved, but inflation has risen in 2021, and the "suffering index" has risen again. By June 2021, the "suffering index" reached 11.3%, higher than the historical time of 78%.
In terms of historical performance, when the S & P 500 / gold is relatively overvalued, it may herald a crisis. There are three periods of high "suffering index" in American history, namely, the first and second oil crises in 1969-1983, the third oil crisis around 1990 and the financial crisis around 2008.
The overvaluation of the S & P 500 / gold relative to the "suffering index" usually occurs before the economic crisis, that is, in the early stages of economic overheating and stagflation. The "suffering index" is ahead of the S & P 500 / gold, the first indicator of economic weakness, while the S & P 500 / gold is still high, forming the Bubble. With the gradual recognition of economic fundamentals, financial markets began to react, since then, whether the rupture of the financial Bubble, or the occurrence of external shocks, are the fuse leading to the economic crisis. Therefore, the overvaluation of the S & P 500 / gold relative to the "suffering index" is essentially an economic weakness, the stock market is out of touch with fundamentals, and there are risks in the market.
Looking to the future, the US economy has not yet achieved self-recovery, gold prices may still have room to rise, the US "suffering index" has risen since 2021, while the S & P 500 / gold has been rising. By June 2021, the S & P 500 / gold is relatively overvalued to 1.58, the market may be at risk. From a fundamental point of view, the US economy is still in a recovery phase under policy stimulus, with unemployment falling but inflation rising, and has not yet achieved self-recovery. Historically, gold prices will clearly enter a downward range only when the economy enters a self-recovery phase, when unemployment and inflation fall at the same time. Looking ahead, our focus is still on the trend of the US economy and the progress of the Federal Reserve in tightening monetary policy. In the context of high inflation and a slowdown in the recovery of US jobs, gold prices may still have room to rise in the future. It is recommended to pay attention to investment opportunities in the gold sector.
Risk hints: changes in the macroeconomic and financial situation, changes in Fed monetary policy, limited and particularity of historical data samples, and deviation in the measurement of the relative "suffering index" overvaluation of the S & P 500 / gold.
