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Gold vs. Currencies, Commodities, Equities & Bonds

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Posted by Jordan Roy-Byrne - The Daily Gold

on Tuesday, 29 July 2014 13:52

At turning points and for Gold in particular, relative performance is quite important. When people buy Gold they are effectively passing on another investment or market. Hence, it is always important to check how Gold is performing against other markets. In the chart below from top to bottom we plot Gold against foreign currencies, commodities, equities and bonds. What is this chart telling you about Gold's relative performance?

july26rpog

Gold looks fine against foreign currencies, good against commodities but has yet to breakout against equities or bonds. We've noted that 0.75 is the important point for Gold/S&P 500. Gold appears close to breaking out against bonds. It could happen suddenly but the price action says its farther away. The action in gold and gold stocks relative to the stock market is something I will carefully watch this week. I think this is more important than the US$. As I showed you last week, correlation analysis shows no negative correlation, recently, between the US$ and Gold. I think at the present time the strength of the equity and bond market is more of a headwind for a sustained recovery in precious metals than a falling US$. Take a look at what happened during Gold's bottoms in 2001, 2005 and 2008. The US$ went up with Gold. The two can go up together.  

Overall, the short term trend is difficult to call. I believe the miners are still in consolidation or corrective mode but Friday's recovery puts that in doubt just a bit. I reduced long exposure a bit this week by trimming the weakest position and those which could have material downside. I also hedged a bit. If the stocks breakout then I can make a few trades and be fully long. If the sector continues to consolidate or correct then I will keep an eye on the relative strength of my positions. To repeat what I said last week:

We want to sell non-performers and reduce overweighted stocks which are not performing strong enough. The stocks that hold up best during this correction, if it materializes, should be the leaders during the next breakout. Meanwhile, stocks that are underperforming and acting poorly figure to lag in the future.

Thanks for reading. I wish you all great health and prosperity in 2014 and beyond. 

-Jordan

....also from Jordan:

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