Gold’s Price Moves from
Stocks and Bonds Perspective
By Przemyslaw Radomski, CFA
The first half of the year is
behind us and, let’s be honest, it was horrible for the precious metals sector.
The yellow metal dropped by 25% and it was its biggest decline since 1981. Last
quarter was also gold’s worst quarter since 1968. One of the factors responsible
for the decline was the strong performance of the stock market which hit record
highs in May. But, the strongest declines have taken place since Ben Bernanke
said last month the economy was recovering strongly enough for the central bank
to begin tapering its $85 billion monthly bond purchases within the next few
After that we saw
new 2013 lows in gold and silver. One of the most interesting things is that the
U.S. dollar’s performance wasn’t as strong a blow to crude oil. The “black gold”
not only escaped the carnage but was also pushed to its highest levels since the
June top. If you want to read something more about this surprising surge we
invite you to read
the oil commentary
prepared by one of our contributors.
Turning back to
the yellow metal once again… Gold is enjoying a corrective bounce now – at least
that’s how we currently view this rally. Today it’s trading around $1,250.
Should we be more optimistic? Let’s take a look at the charts and try to find
today’s technical part with the analysis of the long-term S&P 500 Index chart
(charts courtesy by
As you see on the
above chart stocks broke the rising support line in June and declined below the
2007 high. Although stocks failed to hold above these two levels, we expected
the recent decline was nothing more than another correction. Yes, it was deeper
than the previous one but it doesn’t change the overall picture of the market.
The outlook here is pretty much unchanged, and the implications for gold
continue to be bearish.
If you want to
keep up with the current stock market situation we invite you to read
the daily stock commentary
prepared by one of our contributors.
Now let us have a
look at two important ratios that show gold’s performance relative to other
important groups of assets. The first one describes the ratio between gold and
the Dow Jones Corporate Bond Index. Let’s find out if this ratio provides us
with some valuable insight into the current situation in gold.
we wrote in our
essay on gold, stocks and the dollar on May 28,
support line is the 61.8% Fibonacci retracement level, at 3.79. (…)This is also
equal to the level of the 2008 bottoms in terms of the closing prices.”
ratio moved to its 61.8% Fibonacci retracement level on Friday and the important
support level was indeed reached. There is an interesting connection between
current situation and 2008. In 2008 the declines in gold continued until this
ratio was below or close to the final (61.8%) Fibonacci retracement level. In
our opinion this is a bullish piece of information as this ratio is no longer
signaling lower prices on the horizon - it's neutral for the short term and
bullish for the long term.
important ratio that we’d like to discuss today is the Dow-to-gold ratio. Let’s
have a look then.
As you can see on
this chart the ratio moved higher last week and it even reached one of the
important resistance levels that we had featured previously. The bottom for gold
may already be in based on the above chart. Still, please note that if stocks
decline along with gold, then the latter can move lower without an increase in
the ratio (without a breakout in it). Additionally, the above chart is a
long-term one and if a small, short-term move lower in gold does indeed
materialize, it may cause the ratio to move above the current resistance level
temporarily and move back down in the following days – thus invalidating the
breakout. Therefore, the above chart suggests that the bottom is likely quite
close, not necessarily that it is surely already in.
interesting piece of data let's take a look at one of
the most followed commodity stock indices - the Philadelphia Gold/Silver XAU
Index. After all, it was the case for years that mining stocks were leading gold
both higher and lower.
essay on gold, stocks and the dollar
from June 26, 2013 you could read:
“The XAU Index
is above our initial target (84) for this decline. As you know this target
level was created from the rising support line based on the late 2000 and 2008
lows. (…) This is the range that likely needs to be reached”.
In this week’s
XAU Index chart, we see that prices have indeed moved below 84 . Based on this
chart alone, the bottom may be in. We could also see an initial downswing, which
seems probable, but it’s just not that certain based on this chart alone.
the medium-term outlook for the general stock market is still bullish and it
seems that the bottom in gold is not far away based on some charts (Dow-to-gold
ratio, 61.8% Fibonacci retracement on the gold-to-bonds ratio chart and the XAU
Index that bottomed in our target area). Still, the short-term trend remains
down and the impact that stocks and currencies have on gold confirms the bearish
case. Consequently, even though the bottom seems to be close, the
above-mentioned factors are not enough to convince us that it is already in.
sure that you are notified once the new features are implemented, and get
immediate access to our free thoughts on the market, including information not
available publicly, we urge you to sign up for our free
gold newsletter. Sign up today and you'll also get free, 7-day access to
the Premium Sections on our website, including valuable tools and charts
dedicated to serious Precious Metals Investors and Traders along with our 14
best gold investment practices. It's free and you may unsubscribe at any time.
Thank you for reading.
Have a great and profitable week!
Gold & Silver Investment &
Trading Website - SunshineProfits.com
* * * * *
About Sunshine Profits
Sunshine Profits enables anyone
to forecast market changes with a level of accuracy that was once only available
to closed-door institutions. It provides free trial access to its best
investment tools (including lists of
best gold stocks and
best silver stocks), proprietary
gold & silver indicators,
buy & sell signals, weekly newsletter, and more.
Seeing is believing.
All essays, research and information found above represent
analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits'
associates only. As such, it may prove wrong and be a subject to change without
notice. Opinions and analyses were based on data available to authors of
respective essays at the time of writing. Although the information provided
above is based on careful research and sources that are believed to be accurate,
Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or
thoroughness of the data or information reported. The opinions published above
are neither an offer nor a recommendation to purchase or sell any securities.
Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw
Radomski's, CFA reports you fully agree that he will not be held responsible or
liable for any decisions you make regarding any information provided in these
reports. Investing, trading and speculation in any financial markets may involve
high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and
affiliates as well as members of their families may have a short or long
position in any securities, including those mentioned in any of the reports or
essays, and may make additional purchases and/or sales of those securities