Gold ratios to cyclical assets have weakened during an interim Goldilocks phase
It’s just the way it is at the moment as gold’s ratios to cyclical assets show an at least interim phase of a Goldilocks economy, or markets interpreting it that way, operating beneath the surface. These are the types of indicators I get pretty insistent about keeping intact. Otherwise, the caution points we’ve been noting of late would get more serious.
Let’s use the ETFs related to certain markets to have a look.
Recall that in 2016 we had to call an ‘abort’ on the precious metals as various indicators rolled over. We flagged it in May and the complex rolled over by August that year. So it will be important for gold to hold and/or reclaim intact status vs. these items to keep a positive view in play. Otherwise, a story of dogmatic heartbreak is going to play out in the Bug-o-Sphere.
Gold vs. the broad US stock market is grinding its daily chart uptrend.
Gold vs. global stock markets (ex-US) is rolling over. This is not a pretty picture as it stands now.
Gold vs. broad commodities is dropping to test its intermediate uptrend.
Gold vs. key commodity crude oil is getting cracked below its intermediate trend marker and needs to recover promptly to avoid a damaging signal to gold mining fundamentals. Let’s also be aware that negative potentials per this and other indicators do not necessarily need to result in an immediate sector failure, as this and other ratios were generally rising during last quarter’s period due to be reported in and around mid-February. But if the indicators fail the forward view would beg caution, especially if the sector does re-bull after the current pullback.
Gold vs. key commodity copper is firmly trending down. Copper is a headline cyclical commodity and we only take gold stocks seriously if Bob Hoye’s “post bubble contraction” is in play. Au/Cu is not (yet) indicating that.
Gold vs. the “inflation expectations” ETF is dropping to test the intermediate uptrend marker. You can see why we had a positive view from Q4, 2022 as the ratio busted upward. This pullback needs to avoid breaking below the December low and the SMA 200 or else the play is likely done for now.
Finally, the Gold/Silver ratio is elevated and currently stalled at the 200 day average as we’ve been noting. This is disinflationary signaling that goes along with Goldilocks, but it is not yet disastrous signaling for the macro. If it pulls back I assume gold stocks can resume rallying with other assets but if the stuff above remains generally in weak or breakdown mode we’d be back to “gold stocks are nothing special”… at best.