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Who Is Right - Gold Or Stocks?

Tyler Durden's picture





 

From early October of last year (Grand Plan and Global CB intervention) until the start of the LTRO program in Europe, Gold and Stocks (and Treasuries and the USD) all traded in sync with one another. Since the LTRO program, the equity market has generally been on its own in terms of belief. While growth hope, Europe's recovery, and the Bernanke Put (as well as a short-squeeze of epic proportions) were at play, it seems to us that the Fed's Twist program has been ignored by the money-printing crowd (since Twist was sterilized and did not expand the monetary base (excess reserves) - which gold reacts to; but did provide flow - helping stocks - as the Fed's DV01 increased; implicitly devaluing the currency even though Fed's efforts to dissuade have worked) while the ECB's LTRO provided a liquidity overhang that at-first-glance removed one short-term structural risk from US markets (the Europe contagion). Since we made clear that LTRO is in fact an encumbrance and not 'clean' debt monetization (which fits with gold not moving as much), equity markets in Europe have retraced all of those gains - leaving US still elevated. The last few days, gold and stocks have surged together as hope for LTRO3 (seemingly gone now) and Fed QE3/4 (not sterilized; with ES -7.75% from its highs?) has become imminent. However, Gold and stocks remain very far apart in the medium-term and Rick Bensignor sees trendline support and DeMark TD Setups providing an excellent risk-reward for a Short Stocks, Long Gold trade from here.

Via Rick Bensignor of Merlin Securities,

Gold’s correlation to the S&P 500 has been virtually non-existent for the past year. But right now, charts suggest that gold can outperform the SPX. In and of itself, that not only presents a trading idea, but also some possible negative implications for the likelihood of a sustained equity rally.

What We See

Not long ago we published a piece, showing that gold’s daily correlation to the S&P 500 was virtually at 0.00. This, of course, means that not only doesn’t gold travel in the direction of the S&P, it also doesn’t travel in the opposite direction of the S&P. It simply sometimes does and sometimes doesn’t; so in and of itself, one shouldn’t be using gold as a market to trade either with or against the equity market.

But when we look at a chart of gold vs. the SPX, we now see some very interesting characteristics:

  1. The uptrend line (in blue) from the 2007 low held as support from the decline that started last fall,
  2. The 100-week moving average (in yellow) of this pair – which in the past has been a good place to buy and then hold -- again appears to have given some support,
  3. The old TDST line (horizontal dotted red line) – previous resistance – held as support, as did the current TDST line (dotted green line),
  4. The MACD oscillator on the bottom chart – recently got a buy signal from the most oversold level it has seen in 21 years,
  5. Prior TD Setup 9 counts – whether up or down ones – have been pretty good at calling turns. Though there was none on this recent potential bottom, this week presents itself as a +4 reading, potentially suggesting that this idea has at least another 4-5 weeks upside.

Even with today’s early 15 point rise in the SPX (about 1.25%), gold, too, is up virtually the same 1.25% today. If you put on this long gold / short SPX idea, we’d use a weekly MACD sell signal as your stop out.

 

or in Ounces of Gold to Buy the S&P 500... we see each asset deflation and reflation ramp...

 

and across asset-classes things look out-of-line also... (with Gold 1900, S&P 1170 or somewhere in between)...

Given last night's perspective on inflation (well the deflationary impulse) we suspect a Fed push is coming sooner rather than later but could see gold rallying on that belief (discount inevitable printing) while stocks fade as equity players know that the Fed will not be motivated unless asset prices are falling fast and -7.75% from its highs does not seem motivation enough.

 

Simply put, equities have over-extended on hope that the relatively sterilized central banking juice in the last 7-9 months will create a self-fulfilling recovery (and so growth expectations have been repriced and multiples expanded). However, gold remains muted for the same reason as the Fed has persuaded all that increasing its balance sheet duration is not devaluation. The re-emergence of European stress, China growth slowdowns, and the reality of a completely coupled US leaves market expectations for unsterilized QE which we think Gold has not priced in but stocks have.

Charts:Bloomberg

 


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Wed, 06/06/2012 - 13:54 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Physical or paper?  At this juncture, it makes a difference.

Wed, 06/06/2012 - 13:59 | Link to Comment nope-1004
nope-1004's picture

Who is right?  The Fed, or 5,000 years of "tradition"?

 

Wed, 06/06/2012 - 14:32 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Yes, right, nope!

 

I'll take gold for $55,000, Alex...

Wed, 06/06/2012 - 16:06 | Link to Comment The Monkey
The Monkey's picture

FAZ - down 8.35% today.  What a route!

Bulls - come on in!!!

Wed, 06/06/2012 - 14:05 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Physical Tungsten now tracks physical Gold prices. Lots of paper Gold is being converted to physical Tungsten.

 

http://www.magneticbracelets.com/gold-magnetic-bracelet.html

Wed, 06/06/2012 - 14:59 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

O/T, but not much, a great new article on the rare earth metals sector:

http://www.theaureport.com/pub/na/13530

Wed, 06/06/2012 - 14:29 | Link to Comment William113
William113's picture

The person or persons that put out the 2 o'clock rumor must be right.  PM's just went into the shitter.

Wed, 06/06/2012 - 13:55 | Link to Comment Campagnolo
Campagnolo's picture

is this a serious question?

Wed, 06/06/2012 - 13:55 | Link to Comment GolfHatesMe
GolfHatesMe's picture

That beige book is going to look worse than the mom who brought her daughter tanning

Wed, 06/06/2012 - 13:55 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Dow - manipulated up; Gold - manipulated down.  It will be "right" when they meet in the middle at 5000 or sumpin'.

Wed, 06/06/2012 - 14:33 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

A good time to sell some stocks...

Wed, 06/06/2012 - 15:04 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

Looks like the algos were programmed to crash PMs once silver hit +5% on the day... 

Wed, 06/06/2012 - 13:57 | Link to Comment ArrestBobRubin
ArrestBobRubin's picture

R U F*cking Kidding Brotha?

Wed, 06/06/2012 - 13:58 | Link to Comment homersimpson
homersimpson's picture

DONE! long live the NUGT!!!

Wed, 06/06/2012 - 13:59 | Link to Comment Long-John-Silver
Long-John-Silver's picture

Gold is always right for Bitchez.

Wed, 06/06/2012 - 14:06 | Link to Comment lemonobrien
lemonobrien's picture

that's why it's money.

Wed, 06/06/2012 - 14:20 | Link to Comment Stoploss
Stoploss's picture

Hope you hedged with DUST.  Barrick just fired their CEO.

 

The miners are broke, look at the capex from 3 years to now, looks just like the student loan chart.

 

Wed, 06/06/2012 - 16:24 | Link to Comment n8dawg84
n8dawg84's picture

Is MiningFeeds a good site to learn about miners?  If not, is there a site someone could recommend for me, please?

Wed, 06/06/2012 - 14:35 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1 Long-John

This Bitch is happy w/ his gold.  Just bought some yesterday.

I am eating my own dog food!  You all should buy some too!

Wed, 06/06/2012 - 15:11 | Link to Comment StackAttack
StackAttack's picture

STACK ATTACK!!!

Wed, 06/06/2012 - 14:14 | Link to Comment It is a bargin ...
It is a bargin my friend's picture

Newsflash..Gold getting slaughtered ..this shit drags a man down...deep down

Wed, 06/06/2012 - 14:15 | Link to Comment disabledvet
disabledvet's picture

You folks have lost your mind here. You mean Gold vs TREASURIES. That's the question. Gold PRICE moved probably due to fear of euro debauching. Appears well founded now.

Wed, 06/06/2012 - 14:21 | Link to Comment AchtungAffen
AchtungAffen's picture

Not sure aboot this. Gold today took another fall. With luck it will end up where it ended yesterday. But if it keeps falling it might go even under 1600 again...

Wed, 06/06/2012 - 14:26 | Link to Comment LULZBank
LULZBank's picture

DeMark TD Setups providing an excellent risk-reward for a Short Stocks, Long Gold trade from here.

*ahem* *cough* *cough*

Wed, 06/06/2012 - 14:27 | Link to Comment ebworthen
ebworthen's picture

GOLD

Wed, 06/06/2012 - 14:37 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Yes

Wed, 06/06/2012 - 16:37 | Link to Comment MrSteve
MrSteve's picture

DNC to FED: we got wiped in Wisconsin, what've you got to counter it? We need help at 1600.

FED to DNC: we will pump sunshine for a 2% boost so voters will be distracted from the election results showing less government spending is gaining popular supprt.

DNC: feed the beast or the trial lawyers get tort reformed and then we are really hosed.

FED: those damn cheeseheads..

Wed, 06/06/2012 - 14:30 | Link to Comment wrs1
wrs1's picture

horrible timing, gold crushed and stocks barely dropping

You just can't make this shit up. They must read this site to time the bashing of gold and gold stocks, same with silver.  Glad I booked all my profits early this am becase I have seen this fucking horror film before.

Wed, 06/06/2012 - 14:31 | Link to Comment jmac2013
jmac2013's picture

In this particular case I think stocks are.  Silver was driving the bus in metals today, blowing past $29, but was overbought approaching $30.

Wed, 06/06/2012 - 14:34 | Link to Comment Loco Vida
Loco Vida's picture

stocks and gold only going up on promise of more QE.............Im going short gold and long on Jubilee with a side of one world currency

 

Jubilee is all that will save us...........the forgiveness of all debt..........you will gladly submit

Wed, 06/06/2012 - 15:28 | Link to Comment jimmyjames
jimmyjames's picture

Jubilee is all that will save us...........the forgiveness of all debt..........you will gladly submit

*************

So-the peasants will get bailed out at the expense of the bankers-

Nice pipe dream-

Wed, 06/06/2012 - 15:42 | Link to Comment GMadScientist
GMadScientist's picture

Fuck off and pay your bills.

 

Wed, 06/06/2012 - 16:15 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

Substantitive and succint.

Wed, 06/06/2012 - 14:37 | Link to Comment eclectic syncretist
eclectic syncretist's picture

I'm in on this trade!  Hey It is a bargain, don't worry about gold.  When it starts to move up it's likely to be breathtakingly fast, all you have to do is forget about it and wait patiently.  Your day will come.

Wed, 06/06/2012 - 14:51 | Link to Comment RobotTrader
RobotTrader's picture

Today is more proof of Bernanke's deft maneuvering of the financial markets.

 

The brazen behavior is there to see.  He must be high-fiving at the Fed.

Right in front of the FOMC:

1) Goose retail stocks and financials

2) Smash gold and silver

3) Crush oil prices

I mean, is this guy the "Master and Commander" or what?

Wed, 06/06/2012 - 15:25 | Link to Comment BlackChicken
BlackChicken's picture

Please just die.

Wed, 06/06/2012 - 15:33 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

@ Robot

+ 1

Yes, The Bernank has shown himself to be a masterful playa.  But, our deficits and debts will get him in the end.  At some point he will FAIL.  He can't keep all the plates spinning forever.

Wed, 06/06/2012 - 17:14 | Link to Comment LULZBank
LULZBank's picture

I mean, is this guy the "Master and Commander" or what?

Give me the authority to print money and watch me show you shit you would'nt even have imagined while sniffing glue.

Wed, 06/06/2012 - 14:51 | Link to Comment Confundido
Confundido's picture

Nahhhh, you really want to know why gold crashed? I bought before it did. That's why!

Wed, 06/06/2012 - 15:37 | Link to Comment devo
devo's picture

I've had this happen. It's a kick in the balls knowing you could have had more oz for the fiat.

Wed, 06/06/2012 - 15:43 | Link to Comment GMadScientist
GMadScientist's picture

Well say something next time, 'kay?

Wed, 06/06/2012 - 14:56 | Link to Comment Clint Liquor
Clint Liquor's picture

When they have to 'Bang the close', it's bullish.

Wed, 06/06/2012 - 15:41 | Link to Comment GMadScientist
GMadScientist's picture

When they have to bang open to close, it's bullshit.

 

Wed, 06/06/2012 - 15:09 | Link to Comment StackAttack
StackAttack's picture

Stack Attack!!!

Wed, 06/06/2012 - 15:18 | Link to Comment devo
devo's picture

Equities crash after the election. They'll be fine until then. Silver should outperform everything.

Wed, 06/06/2012 - 15:29 | Link to Comment XenOrbitalEnginE
XenOrbitalEnginE's picture

Shhh. All my money hidden in that obviousneslessness!(Well no not really)

Wed, 06/06/2012 - 15:55 | Link to Comment Silversinner
Silversinner's picture

Bought some nice looking silver dragons,could only

afford ten but still happy as a little kid.

This poor working class boy has been saving

these silver and gold coins for years and

avoided the big robbery of our age.

Gold and silver are trully financial life savers

for me and this guy isn't so poor anymore.

Protect wealth and personel property,that's

what gold and silver does for me.

 

 

Wed, 06/06/2012 - 16:23 | Link to Comment devo
devo's picture

Anyone think this is the end game: government reprices gold at 12,000/oz, essentially backing all outstanding currency, and then confiscates it to pay off creditors?

Wed, 06/06/2012 - 16:28 | Link to Comment eddiebe
eddiebe's picture

The answer to the question is Gold stocks.

Wed, 06/06/2012 - 16:41 | Link to Comment pismo10
pismo10's picture

So do the opposite..

Wed, 06/06/2012 - 23:08 | Link to Comment Venerability
Venerability's picture

Once again: If you still believe that Gold and Stocks are polar opposites, you still believe in a Classical Dow Theory world that no longer exists!

Now that the PM Universe is rapidly moving AWAY from the Gold-Haters - the US and UK - and into the hands of the Asians and others who love and respect the Monetary Metals, it is time to embrace a Gold Is Growth attitude.

Gold - and Silver - represent two major Growth scenarios.

They represent the rapid and inexorable diversification of the World's Currency Reserves, away from ANY one "Empire" Currency, and towards fair, neutral, and balanced Baskets of Currencies representing the realities of World Trade.

The Monetary Metals, being Stateless, mediate this transition.

Even more important, Gold and Silver represent the rapid and inexorable growth of a true Bourgeosie - a Consuming Middle Class - in that one-half of the World which has not had one until recently.

That one-half of our planet corresponds very closely with those countries and regions which have loved and respected the Monetary Metals since the days of the Cavemen: China, India, the rest of Asia, the Middle East, Africa, and Latin America.

(Print out this post and keep it close at hand, in case you are tempted to start thinking like Marc Faber - or worse, like Charlie Munger.)

Do NOT follow this link or you will be banned from the site!