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Is Gold Leading The Path for Other Assets?

After this nominal all time high in late summer 2011, Gold kept trading in between USD 1550 and 1800 for several months (shaded area). We remember what happened after it fell off this trading channel.

Interestingly, the pattern of the Euro since December 2012 (blue line) looks almost the same when compared with the Gold pattern to date. The correlation coefficient is an astonishing +0.79.

Euro December 2012 to Date versus Gold Chart

There are a bunch of possible reasons why the Euro in fact could tend weaker over the coming weeks: 1) The FED decides a possible tapering and/or 2) The German elections coming up end of September and/or 3) The US budget talks end of September.

What is even more astonishing is the pattern of Gold since early 2010 (orange line) compared with the S&P500 Index since February 2012 (green line): The correlation coefficient of +0.93 is almost perfectly parallel!

Gold 2010 to Date versus S&P500 Since February Chart

If the stock market is behaving the same as did Gold two years ago, we should expect a sell off with higher volatility over the next couple of months. The action becomes rather bearish for the S&P500 in late 2014 and especially in the year 2015.

It is also fascinating that the S&P500 Index today (blue line) seems to follow the same pattern as it did for the period 2003 until 2007 (orange line).

S&P500 Now versus S&P500 2003-2007 Chart

Investors can only hope that the similarities are not going to continue. Using these patterns are only a gadgetry with technical analysis. Nevertheless it should not be underestimated that market participants show the same behaviour again and again. Investors who use the financial behaviour theory certainly agree on this fact.

 

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