SPX vs GOLD: How low can it go?

The relationship between equity markets and precious metals often serves as a barometer for broader economic shifts. Currently, the ratio between the SPX (SPX) and GOLD is approaching levels that historically preceded significant changes in market regimes. This analysis examines the technical patterns and historical parallels that suggest a potential re-evaluation of risk assets in the current macro environment.

SPX vs GOLD price action

SPX vs GOLD is approaching a key support level and if broken could lead to a regime change for risk assets

The SPX/GOLD ratio is currently testing a critical support zone that has held since 2015. A decisive break below this level could signal a fundamental shift in markets, potentially marking the end of the recent era of risk-on dominance. Such a shift would likely result in a stronger performance by risk-off assets such as GOLD as opposed to risk on assets like SPX or BTC.

SPX vs GOLD also broke key support in the early 70s leading to sustained weakness in risk assets

Looking back at the early 1970s, a similar breach of key support in the SPX/GOLD ratio preceded a long-term period of underperformance for the stock market. This historical precedent highlights the potential for sustained weakness in risk assets once these multi-year support levels are compromised. Interestingly, prior to the breakdown, there was a counter trend rally on the SPX/GOLD ratio before the actual breakdown occurred. A similar counter trend rally can also be observed in 2025, indicating that the path of the SPX/GOLD ratio could continue following the same pattern as in the 70s.

The RSI on the ratio shows a similar pattern where it first dropped, went higher and dropped again and SPX/GOLD seems to have completed the going higher part already

Technical momentum, as measured by the Relative Strength Index (RSI), mirrors patterns seen in past cyclical peaks. The indicator has followed a sequence of an initial drop, a secondary corrective bounce, and a subsequent decline, suggesting that the ratio may have exhausted its upward momentum. The corrective bounce on the RSI has been completed in 2025 and currently, the RSI could be going further down as indicated in the 70s. A drop in the RSI would result in a weakening SPX/GOLD ratio, indicating that GOLD could be a better asset for a while.

after the breakdown, SPX dropped about 48% initially

In the historical instance of a breakdown, the SPX experienced a sharp initial contraction of approximately 48%. This initial breakdown lasted for approximately 2 years before the SPX/GOLD ratio saw some relief.

GOLD generally went higher in the 70s while SPX saw suppressed price action

During the 1970s, GOLD performed strongly as a hedge against economic uncertainty, while the SPX struggled with suppressed price action. This divergence underscores how capital often rotates into precious metals when confidence in risk-on assets weakens. While the SPX did eventually recover from the breakdown, GOLD continued to perform much better during that period.

SPX vs GOLD broke down a few months before the recession occurred in the 70s

In the 70s, the breakdown of the SPX vs GOLD ratio has served as a leading indicator for a recession, often occurring several months before the onset of a formal recession. While not all recessions lead to extremely deep declines in the SPX, it is important to keep in mind that the SPX could show weakness for a long time, during which time GOLD would merit a higher portion of a portfolio. While GOLD is not immune to corrections during recessions, it tends to recover more quickly than SPX and go to new all-time highs. Lastly, even in the scenario of a recessionary or non-recessionary drop in the SPX, it could potentially offer good entry opportunities.

Conclusion

The SPX/GOLD ratio is currently testing a critical support zone that has held since 2015 and it remains to be seen if it can hold it for the time being or whether it will break below it soon. While a short fakeout below the support level is not unthinkable, historical comparisons to the 70s show that the SPX/GOLD ratio could be going lower for a while. If the SPX experiences a correction, it could potentially lead to good entries, though it could always go lower than one would have expected it.

Pitfalls

Keep in mind that this is a dubious speculation that may or may not occur. SPX might be more bullish than the analysis of the article or more bearish depending on how market sentiment evolves in the future. Indicators do not tell the future with absolute certainty. They are useful to reason about the future, and it is important to balance both bullish and bearish scenarios to avoid bias as best as possible. Lastly, all indicators are prone to failure every now and then. They tend to work well for a while, but eventually, some indicators fail, while others do not at a given time. As more data comes in, the analysis will evolve to incorporate new moves, invalidate a previous hypothesis or gain evidence for a previous idea.

In this analysis, the SPX/GOLD ratio was examined. While this is helpful to understand how an individual asset performs against something else, the interpretation of SPX/GOLD allows for multiple scenarios to occur. Since SPX and GOLD are moving too, the final outcome of SPX itself and the path it takes are influenced.

For an approximately constant GOLD price, SPX/GOLD could go lower, because SPX is underperforming GOLD (dropping). If SPX/GOLD goes higher, then SPX is outperforming GOLD by going higher more quickly. Such relative comparisons are tricky at times, and it is important to keep in mind that its interpretation could be more ambiguous.

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Important Reminder

This article is for educational and entertainment purposes only and is not financial advice. Always consult with a qualified financial advisor before making investment decisions, and only invest what you can afford to lose.