Why Capital Is Now Moving from Stocks to Precious Metals
Over the past year, a powerful new cycle has emerged—one marked by capital rotating out of stocks and into precious metals, which is set to send gold and silver much higher.
Over the past several months, I’ve been analyzing and highlighting the growing trend of capital rotating out of the highly inflated U.S. stock market—which I believe is deep in bubble territory—and into the significantly undervalued precious metals sector. Despite the rally of the past year, gold and silver remain quite undervalued. In this piece, I want to take the concept of capital rotation a step further by diving deeper into specific stock indices and sectors and even highlighting a few individual names. We’ll compare them to gold to better understand where we are in the rotation cycle—and how far it has already progressed.
From 2012 to 2024, U.S. stocks—especially tech—dramatically outperformed gold, which spent much of that time stagnating. As a result, many investors lost confidence in gold and poured into equities with growing enthusiasm. But about a year ago, something significant shifted: gold began to decisively outperform stocks. A chart of gold versus the Dow Jones Industrial Average (DJIA) makes this shift clear—and the same pattern holds across other major U.S. indices.
To truly grasp capital rotation and the dynamic between stocks and gold—two essentially competing asset classes—it’s helpful to examine the long-term chart of the Dow-to-gold ratio, which is calculated by dividing the Dow Jones Industrial Average (DJIA) by the price of gold. I focus on the Dow because it offers the longest historical data, but the same analysis can be applied to other stock indices, including international ones like Japan’s Nikkei and the UK’s FTSE 100.
The Dow-to-gold ratio chart I’ve created below spans all the way back to the early 1940s, using 3-month bars and a logarithmic price scale. When the ratio is rising, it indicates that stocks are outperforming gold; when it's falling, gold is outperforming stocks. This chart is a powerful tool because it respects trendlines remarkably well—so much so that when the ratio breaks a key trendline, it signals the beginning of a new capital rotation era.