• 12 hours Investors Flee Emerging Markets Amid Lira Crisis
  • 13 hours Startup Aims To Attract Young Renters With Savvy Tech
  • 14 hours The Last Frontier For Artificial Intelligence
  • 15 hours EU Companies Struggle To Pick Sides In U.S.-Iran Dispute
  • 16 hours Turkey’s Currency Crisis Raises Fears Of Contagion
  • 18 hours Could Gold Fall Below $1,000?
  • 20 hours Markets Open Higher Despite Ongoing Turkish Crisis
  • 1 day Why Gold Investors Should Ignore The Swings
  • 2 days Stock Buybacks Poised To Eclipse $1 Trillion
  • 4 days Google Accepts Chinese Censorship For Big Payout
  • 4 days Baltics Want to Pull The Plug On Russian Power
  • 4 days Gold Demand In Iran Hits Record Levels
  • 4 days Ride-Sharing: The Next Hotbed For Cybercrime?
  • 4 days Turkey’s Currency Crisis Sends Shockwaves Through Global Markets
  • 4 days Why Rising Inflation Won’t Help Gold Prices This Time
  • 4 days Emerging Markets Hit Hard By Fed’s Trillion Dollar Experiment
  • 5 days What Is Vanadium And Why Did Its Price Just Skyrocket?
  • 5 days Greece: The EU’s Weakest Link
  • 5 days Fraudsters Target Taxpayers In Million-Dollar Scam
  • 5 days Millennials Are Picking Bitcoin Over Stocks
  1. Home
  2. Markets
  3. Other

Leading Indicators for Gold's Turnaround

Gold is currently getting a reprieve as it trades close to $1240 which is above important weekly support at $1200. It's safe for the time being but we believe that Gold will ultimately break back below $1200 and below $1100 before the end of the already long in the tooth bear market. Because Gold is somewhat of an anti-asset, it's important to chart its course against other asset classes. Gold performs best when its strong against all other classes. Moreover, prior to recent important bottoms Gold bottomed first against other classes before bottoming in nominal terms. It appears that could happen again.

The first chart looks back at the 2008 bottom. We plot Gold against foreign currencies, commodities, global equities and the S&P 500. Gold's lowest tick was late October 2008 while its daily low was in November 2008. Against other asset classes, Gold bottomed before then. Gold bottomed against foreign currencies and the S&P 500 in September while bottoming against global equities in May and commodities in June.

Gold Charts

We should also note that while Gold bottomed in April 2001, it bottomed in real terms (against foreign currencies, equities and commodities) months before then.

Let's look at the same charts today. While Gold has only recently emerged from a weak triple bottom, it is showing more strength against the other asset classes. Against foreign currencies Gold is nearly 10% above the December 2013 low. Gold is very close to an 11-month high against commodities and is trading at a 7-month high against global equities. Gold remains weak against the S&P 500.

Gold Charts 2

Going forward there are a few things we will be watching. Assuming Gold breaks back below $1200 and eventually below $1100, will it be able to hold these recent lows against the other asset classes? If yes then that will show that though Gold is declining it is maintaining the kind of relative strength that was in place at previous major bottoms. Secondly, the Gold vs. S&P 500 ratio is very important. US equities and precious metals have been on a divergent course since the summer of 2011. If we get a weekly close in the ratio above 0.75 then it would signal a major turning point in favor of Gold.

In the meantime we would advise continued caution. Gold and Silver have bounced but only from an extreme oversold condition. Though Gold has rallied $50/oz the miners have done nothing. The large caps (GDX, HUI) are trading dangerously close to recent lows while the juniors (GDXJ) have tread water at best. They are hinting that this rally won't last. Please stand aside for the time being. I see a potential lifetime buying opportunity emerging in the months ahead.

Good Luck!

 


Consider learning more about our premium service including a report on our top 5 stocks to buy at the coming bottom.

 

Back to homepage

Leave a comment

Leave a comment