It has been two years since we last looked at the historic ratios in PIN. If you have not read any of the previous articles on the subject, the concept is a relatively straightforward one. The average price over the past 25 years is calculated for five major asset classes – an ounce of gold, a barrel of Brent crude oil, the FTSE 100, the price of a UK home and the price of a London home (both using the Nationwide HPI).
At the start of 2024, the ratios predicted that the FTSE 100, which at the time was at just over 7,700 points and had only gone past the 8,000 point mark for a total of two weeks in its history, was the most undervalued from the five asset classes. At the end of January this year, the FTSE 100 was well above the 10,000 benchmark and it has increased by almost one-third since that article, so this prediction was definitely correct.
As you can see in the table below, the historic ratios indicate that the FTSE 100 has further to rise, with a prediction that it should hit 11,000 at some point this year. This sounds high until you consider that it was at 6,000 points back in 1998.
However, the correct call on the FTSE 100 was completely overshadowed by the wrong prediction that gold (priced at more than $2,000 an ounce at the time) was overvalued. Since then, it has soared by 135%! At the time of writing (31 January), gold was at a staggering $4,888 an ounce, much to the delight of the ‘buy gold’ community that must now be looking at Donald Trump as the answer to their prayers.
Since Trump took office for a second time in January 2025, gold has soared by around 85% in value, while the US dollar has fallen by around 10% during the same period. So, what is going on?
The timebomb will soon stop ticking
According to Fortune Magazine, the cost of servicing the enormous US government debt of $38.7trn (it will be a few hundred billion dollars more by the time you read this) has increased from less than 10% of total US government spending in 2019 to between 17% and 19% this year. Now, if you spend 19% of your net income on your home, whether on rent or on interest payments for a mortgage, it is not the end of the world because the money is serving a purpose, i.e. it is preventing you from sleeping under a bridge.
