When assets are in strong uptrends, they’re not just going up in value on an absolute basis, they also outperform their alternatives. Two obvious alternatives to investing your money in Gold are Stocks and Bonds. With the price of Gold flirting with new multi-year highs, we want to see how it’s behaving vs the other asset classes.
The first thing that stands out to me here are the massive bottoms on both of these charts. We like buying smiley faces, not frowny faces. Do these look like bottoms or tops?
On top we have Gold relative to US Treasury Bonds using the two most liquid ETFs to represent each asset class. We’ve been pointing to the multi-year breakout in Gold vs Bonds since coming into the year. That was a very bullish development that has kept us interested in precious metals throughout 2018. On the bottom of the chart we have Gold relative to US Stocks, specifically the S&P500. This has all the makings of a failed breakdown and the path of least resistance in the GLD/SPY ratio seems much higher if we’re above those late 2016 lows.
Again, if Gold is in an uptrend, it is going to be outperforming its alternatives. I think that’s exactly what’s happening here. We still want to be long Gold if we’re above 1300. That hasn’t changed. That 1550-1580 level looks like the next stop. We will reevaluate at that point, but a retest of those all-time highs above 1900 is definitely in the cards.