Gold vs Stocks - Short & Long Term

The stock market has been frustrating and without a trend for the better part of 2011. Meanwhile, some old trends that have been working for years are still working today. Here is a chart of Gold relative to Stocks. We'll use $GLD vs $SPY to keep things simple:

Throughout this entire year, we have seen a series of higher lows and higher highs in this trade. Someone once said that, "there is always a bull market somewhere". This trade has worked for a decade and has also worked throughout this year as well. We can talk about why for hours and hours. Most of us have our theories, but price action here is perfectly clear so let's focus on that.

Looking back further, this trade has been working all decade long. Gold outperforming Stocks. The stock market goes up and the stock market goes down. But relative to Gold, the stock market has just been going down (and in turn Gold keeps going up relative to stocks).

The longer term chart looks to be breaking through this recent consolidation. The ratio has been trading in a side-ways, triangle-like range for the past 30 months or so. Take a look at this decade long trend and the breakouts from each consolidation.

It looks to me like this ratio is trying to breakout from this multi-year range. The shorter term picture combined with the longer term outlook is very interesting here.