So much will be dependent upon whether or not a seasonal bounce takes place in the risk ‘on’ trades since gold is a risk ‘off’ haven. Gold would fade vs. risk ‘on’ and cyclical markets/assets if a relief rally were to come about.
So let’s take an in-day snapshot of some daily chart to get a feel for where things are at.
Gold (GLD)/SPX (SPY) has dropped from the SMA 200 after not making a higher high. That’s a caution for gold bugs and a potential positive for stock bugs.
GLD/ACWX has a similar message, globally. The ratio has pulled back sharply after not making a higher high.
We have noted that Gold/Commodities would likely cool off. The ratio continues to be very extended and is vulnerable if a risk ‘on’ (relief) phase hits the markets.
GLD/USO is also very extended as we’ve been noting. No pullback yet. The results of moves like this are very likely going to have some impact on Q4 reporting in Q1 2019. But unfortunately for the miners, the market is not looking forward at this time. Again, the average inflationist bug is very bearish because inflation signals have evaporated over the last couple of months.
GLD/DBB (base metals) continues to have a non-overbought, counter-cyclical look to it. This is one for the stock market bears and gold bugs.
GLD/HYG (junk bonds) is down hard today. It began an uptrend in early October but did not make a higher before turning down. This is in line with the Gold/Stocks ratios noted above. If GLD/HYG continues to weaken here, the door would be open for a macro relief rally. If not, bring on the pain.
GLD/UDN (global currency proxy) did not make a higher high either. Another one to watch.
Bottom Line
The gold sector’s fundamentals shot upward across the board over the last 1-2 months. In the case of oil and commodities it continues to be extended and vulnerable, especially if markets get a relief rally. What’s more, the improved fundamentals obviously have not helped the mining sector in Q4 and our target for this becoming readily accepted is the Q4’s reporting season in late January through February.
Taken as market indicators, if gold continues to weaken vs. the things that it shot upward against in October we could be looking at a seasonal risk ‘on’ party. If this week’s pullbacks are just blips before new upside, the party will likely be canceled.
I just wanted us to see the current pictures as they stand now.
