Doing the gold/currencies charts in the previous segment and reading Steve Saville’s piece called What is a Bull Market?, which compares gold and the S&P 500, I decided to check in on the Gold/SPX situation using a monthly chart.
As you can see, gold abdicated its role as stock market deflator, post-2011, when so many other indicators “stopped working” according to people who are set in stone in their methods.*
I have little doubt that this is only a post-bubble bounce, like for instance the nominal Nasdaq from 2002 to 2007 (that is a handy 5 years and right in the ballpark with SPX/Au’s 2012-2017 rise). But I do have doubt as to whether the SPX/Gold ratio is double topping now and preparing to turn down. The doubt is technically due to the Fib retracement residing up there around 2.5 for the ratio and fundamentally due to issues like a still-declining 10-2yr yield curve. The Nasdaq retracement did by the way, come close to its 38% Fib.
Here’s a close up view of the current situation with respect to a would-be double top. As to the ultimate answer, I am comfortable leaving the market to its devices (no IHI-related pun intended) and just keeping an eye on the proceedings. It’s pretty much what I do. The chart above says stocks are a bit over valued vs. gold now after crashing to erase the bubble phase (1995-2000) over valuation of the previous bull market. But it also shows no signs of terminating other than a would-be double top scenario.
*Yet another gift to the markets that is still giving, compliments of Operation Twist’s inflation sanitization.
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