The pundits have made a big deal of stocks’ recent rally and gold’s plunge. Some even went so far as to claim that gold has lost its “safe haven” status. They’re horribly mistaken.

For one thing, gold has held up incredibly well relative to both stocks AND commodities. Stocks have fallen 32% in 2008 thus far. Oil is down 26%. Zinc is down 58%.

Gold is only down 16%.

Also, if you take a long-term historical perspective between stocks and gold, it’s clear that stocks are still expensive while gold is quite cheap.

According to Dr Marc Faber, editor of the Gloom Boom Doom report, gold and financial assets move in distinctive long-term trends. Over the last 110 years, this trend has staged six major phases:

1900-1929: stocks outperform gold
1929-1932: gold outperforms stocks
1932-1966: stocks outperform gold
1966-1980: gold outperforms stocks
1980-2000: stocks outperform gold
2000-???: gold outperforms stocks.

Most recently, gold has completely trounced stocks. In fact, based on “real” terms—i.e. the price of gold—stocks actually peaked in 2000 and have since fallen 72%!

And they’re still expensive.

The median stock (as measured by the Dow Jones Industrial Average) to gold ratio over the last 106 years was 5.4. In other words, during the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.

Today, it takes more than 10 ounces of gold to buy one unit of the DJIA. So in spite of gold’s mammoth rise from $250 to $700, the precious metal is still quite cheap relative to stocks.

So while the mainstream financial media and the Federal Reserve might be proclaiming an end to the commodity boom and the beginning of a new bull market in stocks, I don’t buy it. In real terms, stocks are anything but cheap. Gold on the other hand, is clearly undervalued.

And thanks to this recent dip, it’s gotten even cheaper.

Graham Summers

Ps. I’ve found a special opportunity in how to play gold. It’s a massive mountain of bullion (more than 700 million ounces) trading at a bargain basement price of $166 per ounce. I’ve detailed this investment and several others in a FREE Special Report, The Golden Empire. Swing by www.globalstockmonitor.com to pick up a copy today.