Tuesday , 21 May 2024

More Conclusive Evidence Needed Before Jumping On the Latest Gold Bull Story – Here’s Why

The short-term outlook for gold is promising. However, with the golds having moved so far so fast, they are a

Riding The Bull Market
Riding The Bull Market

little extended here. I would like to wait for more conclusive evidence of upside breakouts before jumping on the gold bull story. Let me explain why I hold that view.

The above comments are edited excerpts from an article* by Cam Hui (http://humblestudentofthemarkets.blogspot.ca) entitled Have We Seen This Golden Movie Before?.

The following article is presented courtesy of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!)www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Market Intelligence Report newsletter (register here; sample here) and has been edited, abridged and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.

Hui goes on to say in further edited excerpts:

In recent days, the blogosphere has gotten excited about a potential turnaround in gold and gold stocks. Specifically, technicians have pointed to the rally in:

  • gold (top panel of chart),
  • the gold stock to gold ratio (GDX/GLD, middle panel) and
  • the better performance of high-beta silver to gold ratio.

(click to enlarge)

All of these point to better times for the bullion price but when you look at the situation with a five-year time horizon [as shown below] you can see] that:

  • only the GDX/GLD ratio (middle panel) has staged a rally out of a relative downtrend and is now displaying a sideways basing pattern.
  • The other two, namely gold and silver/gold ratio, are rallying up to test their long-term downtrends. A more bullish interpretation could be that these two ratios have rallied out of relative downtrend (dotted lines) and they are now consolidating sideways (shown in grey).

(click to enlarge)

While the dovish message from Janet Yellen could possibly spark better performance for inflation hedges like gold, other charts of inflationary hedges have not confirmed the upside breakouts in gold and gold stocks.

The TIP:AGG Ratio

The relative performance of TIP to AGG (Barclays Aggregate Bond Index) for example, shows below that TIPS have started to turn around in relative performance against the bond market. However, we have not seen any signs of a breakout.

(click to enlarge)

The XME:SPY Ratio

In addition, the relative performance of metal and mining stocks (XME) against the SPX shows a similar pattern of a rally out of a relative downtrend, but XME remains in a sideways relative consolidation pattern.

(click to enlarge)


In conclusion, the short-term outlook for gold is promising…[but they have] moved so far so fast that they are a little extended here. I would like to wait for more conclusive evidence of upside breakouts before jumping on the gold bull story.

Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.


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One comment

  1. I believe that when Gold really starts to move due to some Geo-political event everyone will be left out, because those with the best internet connections (Big Traders) will have bought it all…

    Plan ahead or you will end up beholden to those that do…