So, gold didn’t move below $1,500 and it
rallied recently – the worst is behind us, right? It might be, but
there are reasons to think otherwise and in today’s essay we will
feature two charts (courtesy by http://stockcharts.com) that should make you think twice before investing your whole capital
in the gold market.
The first one features the Dow:Gold ratio.
The ratio appears to have broken above the declining
resistance line. This is a bearish sign for gold relative to stocks, as it
indicates that stocks will outperform the yellow metal. Please note that gold
topped when this ratio bottomed and as the latter rallied, the former
The ratio consolidated in the past few months (as
gold did), but since the consolidation took place above the declining
resistance line, it confirms the breakout and makes the situation more
bullish for the ratio and more bearish for gold. Unfortunately (for those who
“like” gold – we fall into this category), the next
resistance level is quite far from where the ratio is today and this
translates into a possibility of a significant decline in gold.
The second chart for today is the ratio of gold to
prices of corporate bonds.
In short, this ratio tells you how gold performed
relative to corporate bonds. This chart provides a clear bull market picture
with several more or less significant corrections along the way. The
“problem” here is that gold has broken two major support lines
and has been trading below them for several weeks, which means that these
breakdowns were verified.
This suggests that the decline is quite likely to
continue and since this ratio moved very much in tune with the price of gold
(no wonder – gold is in the numerator of the ratio), it serves as an
indication that gold might decline as well.
Summing up, positive long-term fundamentals for gold are in place
and we will most probably see much higher gold prices in a few years,
however, the medium term is not that clear and we believe that caution is
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Thank you for reading. Have a great and profitable week!