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My sister-in-law teaches psychology. We have interesting arguments about "constructed memory". She says that "facts" that we remember from our personal experience are mostly distorted by subsequent events so that Timber1956's account of what was said by one family member to another over dinner ten years ago should be take with a grain of salt.
With that in mind I have started this thread with no particular objective or agenda in mind, beyond asking myself whether my reading of the markets over the last five years is consistent with what actually happened as reflected in the pricing data, and see if I learn anything that might useful in developing my investment strategy for the future.
So I have downloaded five years of daily USD gold prices (thank you Perth Mint) and five years of daily S&P 500 (thank you Yahoo Finance) which I plan to subject to a number of quantitative tests. As I go along, I invite readers to comment and maybe make suggestions for different ways they might like to see the data cut and analysed.
I have started with a simple view. To prepare the chart below, I have calculated the daily percentage shift for the price of gold and the S&P 500, and added a plot for the price of gold.
I think that the thickness of the the (brown) S&P plot is a good measure of the markets perception of systemic risk. Assuming that gold investors are looking for insurance against systemic melt down, the peaking of gold in mid-2011 makes perfect sense, as does the subsequent retreat from gold as the risk is seen to subside. The markets seem much less worried now than they were in 2011 (which I think is rather at odds with media reporting).
But the Greek Debt Crisis is so much history. I want to have a closer look at the more recent data to see if I can detect an actual changes in risk to back up the "bottom in" call that is gathering for the price of gold.
Back soon!
