Lets Put Gold Prices in Perspective

Gold prices are making nominal all-time highs this week. What else is new? The barbarous relic has been outperforming the stock market for over a decade. This trend has been in place for a very long time and we see zero evidence of this changing.

Just take a look at the long-term charts of the S&P500 and Dow Industrials relative to Gold. Do you see anything in either one of these to even hint of a reversal? (Click on Charts to Make Larger)

Let's discuss Gold on it's own: We're talking all-time highs here right? So the comparison has to go back to the early 80's when the yellow metal was breaking records just like this. Well if we're going back 30 years, then we need to adjust for inflation to make it a fair comparison right? Let's use the Consumer Price Index:

It looks to me like we have a long way to go to get back to the Real record highs. So when we see $GLD making new highs, the Gold Miners ($GDX) going nuts on an otherwise boring day for the rest of the market, and the Junior Miners ($GDXJ) breaking out one by one, lets remember to take a step back and look at the big picture. If you're using a top down approach you know that this trend has been in place for a while. Big, obvious, macro trends like this are great places to start your analysis in order to then look for a solid risk vs reward opportunity to take advantage of it.

The pairs trades here are tremendous. We can see in the charts up top how well "Long $GLD Short $SPX " or "Long $GLD Short $DJIA" have worked over the last decade. As far as the Miners are concerned, whether you're looking at the big boys like $NEM $ABX $GG, or looking at some of the smaller names like $AUY & $IAG, remember to look at the big picture and then break it down.

But along the way, when you're trying to figure out how to take advantage of this move gold, or whether or not you should take advantage of it at all, keep in mind where we've been in the past.  Remember what has been working and what has not. This makes life easier.

Charts via Ron Griess at The Chart Store