Stocks? Or Gold?

Gold just hit an all-time high of $5,000. It’s had quite a run over the past two years, really into heady territory. Is it expensive?

The S&P 500 recently crossed 6977 on January 12, an all-time high. It is up an incredible 40% since April 8, 2025. Is it expensive???

It’s hard to say if gold is expensive through traditional financial analysis. You can’t discount its cash flows, obviously. You can only say what it buys. What if we consider how much S&P 500 it can buy? Understanding how the ratio of the prices of two assets evolves over time can give you some idea about relative prices, and how that relates to historical experience.

What we’re doing is just expressing the S&P 500 in terms of a different numeraire.

But we also must be cautious about how much we can claim. As an esteemed scholar I greatly admired, Martin Shubik put it, “Money as numeraire is a matter of convenience in the formal model; it acquires its special status only when institutions are introduced.” In other words, pricing the S&P 500 in dollars or in gold doesn’t reveal some hidden, truer value—it simply reflects which measuring stick we’ve chosen, and that measuring stick only matters economically because our monetary and financial institutions give it meaning.

He’s saying that money is just a unit of measurement, like inches or pounds. It only becomes powerful or “special” because governments, banks, and markets organize the economy around it. So, when you price stocks in gold instead of dollars, you’re just switching rulers—not uncovering a secret underlying truth. But this is fun, so let’s see what it says.

A couple observations:

The mean ratio is 1.264 oz and the median 0.880 oz. The mean sits well above the median because the late-1990s equity boom produced extreme upside outliers in the ratio.

The minimum was 0.157 oz in January 1980 at the peak of modern-day inflation.

CPI was running above 13%, real rates were deeply negative, and gold was in a speculative frenzy. Paul Volcker had just begun his aggressive tightening campaign, equities were depressed in real terms, and gold briefly became the dominant store of value in global markets.

The maximum was 5.408 oz, during August 2000. This was a very different time for equities. It was at the end of the dot-com equity bubble when technology stocks had driven valuations to historically extreme levels and the S&P was at crazy P/Es. Gold, by contrast, was in a secular bear market after two decades of disinflation and a strong dollar.

Where are we today? At a ratio of 1.4, much closer to the average than we’ve seen in the last 10 years.

So, which is more expensive? In deference to Professor Shubik, I won’t make any claims. However, I was also once taught that an ounce of gold always buys a good suit (think Savile Row.) This is a relationship that stays true over time. By that measure, I’m a seller!