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A signal that comes along but once-a-decade!

Peter Degraaf

Kitco Commentaries | Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

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In today’s high-information environment, it is easy to become confused by conflicting signals.  Every transaction in every stock or commodity consists of a buyer and a seller, each of them acting upon the information they have received, to arrive at their decision.

This short article focuses on a signal that happens on average, once in a decade.  It compares the trend in the price of gold to the current trend in the stock market.  The last trend change occurred eight years ago.  It now appears from our first chart that a new trend change is upon us.

This chart courtesy Stockcharts.com compares gold to the US stock market.  The arrows point to major turning points that come along on average about once a decade.  In 2002 we saw a signal that suggested selling stocks and buying gold, as the trend crossed over the 50 month moving average.  Back then the DOW was sitting at 3,000 and gold was available at $275.   The ratio was about 11:1.  In 2012 the trend started to reverse, with stocks at 4,000 and gold trading at $1,600.  The ratio at that point was 2.50:1.  Today’s chart is suggesting the selling of the DOW at 8,500, and buying gold at $1650, while the ratio is back up to 5:1. 

This chart courtesy macrotrends.net shows the DOW to Gold ratio during the past 100 years.  Briefly in 1980, the ratio dropped to 1.30:1, while at the other end of the spectrum, in the year 2000, the ratio touched 40:1. 

This chart courtesy stockcharts.com compares the price of gold to the S&P 500 index on a daily basis.  Since late 2018, the trend clearly favors gold.  The supporting indicators at top and bottom of this chart are positive, along with the moving averages (50D and 200D).  

This chart features GDX, the miners ETF.   The pattern is a bullish ‘cup with handle’ formation.  A breakout at the blue arrow will have a technical target at 44.  The supporting indicators (at top and bottom of the chart) are positive, while the moving averages are in positive alignment and rising.

By Peter Degraaf

Contributing to kitco.com

Contact itiswell@cogeco.net
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.