When it comes to global macro trading, the importance of gold isn’t just limited to its role as a precious metal or safe-haven asset. It also serves as an invaluable yardstick to gauge the true value of equity markets around the world. By comparing major equity indexes such as the S&P 500, Nikkei 225, Hang Seng, CSI 300, FTSE 100, DAX, and CAC 40 against gold, we can strip away the distorting effects of currency inflation and see a clearer picture of market reality. In this post, we’ll delve into why and how forex and macro traders can leverage this analysis, highlighting key insights from the past decade (2015–2025).
Why Compare Stocks to Gold?
Gold has historically acted as a stable store of value, especially during inflationary times and market turbulence. Unlike fiat currencies, gold can’t be printed at will by central banks. Hence, comparing stock indexes to gold effectively adjusts for inflation and currency depreciation.
For instance, if the S&P 500 index is rising in nominal terms but falling when measured in gold, it signals that inflation (or dollar depreciation) might be inflating nominal equity gains. This kind of analysis helps traders understand if the stock market rally is genuine or merely an inflation-driven illusion.
How to Analyze Indexes Relative to Gold
The easiest method is to calculate an Index/Gold ratio—simply dividing the equity index level by the gold price in the same local currency. This ratio reveals how many ounces of gold are required to purchase one unit of an index. A rising ratio implies that equities are outperforming gold (often indicating strong economic growth or low inflation), whereas a declining ratio suggests gold is outperforming stocks (highlighting risk aversion, inflation concerns, or currency devaluation).
Historical Trends and Turning Points (2015–2025)
Let’s explore significant global indexes and their journey against gold over the last decade:
United States: S&P 500
In 2015, the S&P/Gold ratio stood around 1.9. By 2021, driven by stimulus and economic reopening optimism, it surged to 2.6, indicating equities were strongly outperforming gold. However, in 2022, inflation fears and aggressive Fed hikes brought the ratio back down significantly to about 2.1, suggesting that inflation had eroded real equity returns.
Japan: Nikkei 225
Japan’s Nikkei index ratio to gold remained relatively flat over the decade, highlighting the role of a weakening yen and frequent stimulus from the Bank of Japan. The Nikkei/Gold ratio oscillated dramatically between 0.11 (2022, indicating yen weakness) and 0.18 (2017 and 2021, during periods of market optimism).
Hong Kong: Hang Seng
Hong Kong’s market experienced structural headwinds, resulting in its underperformance relative to gold. Starting at a ratio of about 0.32 in 2015, it fell sharply to around 0.18 by 2022 due to geopolitical tensions and domestic instability, highlighting gold’s protective value.
China: CSI 300
China’s CSI 300 ratio showed volatility, reflecting periods of intense bullishness (ratio 0.85 in 2020) and sharp downturns (0.45 in 2018). This pattern clearly illustrated the uncertainty and frequent policy interventions in China’s market dynamics.
United Kingdom: FTSE 100
The FTSE 100 had notable swings due to Brexit uncertainties and currency fluctuations. The ratio declined notably after Brexit, reflecting sterling depreciation and gold’s rise as a safe haven, before modestly recovering.
Eurozone: DAX and CAC 40
European indexes generally outperformed gold modestly over the decade, with significant currency swings impacting valuations. Notably, the DAX ratio rose from approximately 11.1 in 2015 to about 13.3 in 2025, while the CAC 40 went from roughly 4.8 to 5.9, signifying genuine equity growth despite currency volatility.
Currency Implications
Currency fluctuations play a pivotal role in the equity/gold relationship. For instance:
- A weakening currency typically boosts gold prices locally, decreasing the equity/gold ratio.
- A strengthening currency generally moderates local gold price increases, benefiting local equity markets relative to gold.
Forex traders need to keep an eye on these relationships. For example, the sharp yen depreciation in 2022 dramatically increased gold’s value in yen, significantly impacting the Nikkei/Gold ratio.
Benefits and Drawbacks
Benefits:
- Provides inflation-adjusted equity valuation.
- Offers a global benchmark unaffected by local monetary policy manipulations.
- Useful for identifying macroeconomic regimes and shifts between risk-on and risk-off environments.
Drawbacks:
- Gold itself is volatile and subject to speculative movements.
- Does not account for dividends and earnings generated by equities.
- Not precise enough to replace fundamental valuation metrics.
How Traders Can Use These Insights
Forex and macro traders can employ these insights to:
- Identify potential equity market overvaluation or undervaluation.
- Understand true market performance stripped of inflationary effects.
- Develop cross-asset and currency hedging strategies.
- Gauge broader economic sentiment and regime shifts (risk-on vs risk-off).
Final Thoughts
Using gold to benchmark equity indexes provides traders with a clearer, inflation-adjusted market perspective. It’s a valuable tool that, when combined with other analytical methods, can significantly enhance macro trading strategies. As traders, understanding real versus nominal returns ensures wiser investment decisions and improved long-term outcomes.
For the macro and forex-focused trader, gold isn’t just another asset—it’s an essential analytical tool that brings clarity to an increasingly complex financial landscape.
Happy Trading,
Takezo Trading
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