Stock Market and Gold Performance

Here's a chart of the Straits Times Index (STI) with data for the last 3 years.

It shows that the market rally from the March 2009 lows have recovered a substantial part of the losses since the late 2007 highs.

Here's another chart showing the same STI data divided by the price of gold.

Using the price of gold as a rough measure of the extent of monetary inflation in the world (and to my mind a more accurate reflection of inflation than the Consumer Price Index), we see that the stock market has actually not done all that well in real terms.

The STI has been relatively flat throughout 2010 in gold terms, meaning that all the price rises so far are likely caused by monetary stimulus, or 'liquidity' in other words.

To me, this shows that the massive money printing by the central banks of various countries have not been effective in dealing with the global financial crisis of 2008. It looks like we are still in the midst of what could well be a depression in the developed economies of the West and Japan.