As the calendar turns to May and many of us in the Northern Hemisphere start thinking about shedding some pounds in preparation for the beach season, I'll try to provide you with a little incentive this week in the form of charts. For decades now, investors have "fattened" their trading accounts on two American bellwether stocks — McDonald's and Coca Cola. This week, we'll look at both in terms of their ratio to gold to see if it might be now time to rotate out of the stocks and into gold for the years ahead.
We'll start with Gold/MCD and first note the 1980 all time high when it took 826 shares of MCD to buy just one ounce of gold. In the proceeding years, gold prices absolutely collapsed against the fast food giant, falling to as low as about 5 shares of MCD to an ounce of gold by the year 2000. However, the last few years shows us that an interesting turnaround could be in the making. It started in 2022 when the ratio held a 23-year double bottom, suggesting the top might have been in for MCD against gold. Then in 2024, the ratio broke out of a 44-year declining resistance. Now most recently, the ratio has broken out and appears to have successfully backtested a huge 34-year base. The evidence certainly suggests that the path of least resistance for this ratio is up.
Switching over to Gold/KO, we see an interesting long term picture which I have defined as a 64-year descending channel. True, KO ate gold's lunch from 1980-1999, but gold has outperformed since then. The most recent 14-year arc, complete with a breakout and what looks like it will be a successful backtest, is extremely promising and suggests that gold may have a long way to go against KO. To truly confirm this, however, we need to see the ratio break out of the long-term descending channel. The message from this chart is that while the best time to have traded KO for gold was in 1999, the second best time may well be now.
As you're shedding a few pounds this spring, remember that it may not be a bad idea to shed a few fast food stocks as well for a little bit of gold.
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The information contained in this article is for information purposes only and does not constitute investment advice or a recommendation to buy or sell.
