Make Kitco Your Homepage

The most important indicator for gold

Commentaries & Views

The fundamental driver for Gold is declining real interest rates or expectations of a decline in real interest rates. Fed rate cuts or accelerating inflation and rising inflation expectations lead to declining real interest rates.

In the current macro-market context, the most important indicator is something different.

Recently, we wrote why the real bull market has barely started.

A huge bull market in Gold precludes the stock market from performing well.

Sure, there can be some periods when both perform well together. These include the early to mid-1960s, 2003 to 2007, 2009-2010, and 2020.

However, given the structure of the Gold market, the next leg higher will include dramatic outperformance against the stock market.

The Gold to S&P 500 ratio (bottom right) needs to break past a 7-year range (resistance at 0.70). That break is likely to coincide with Gold exploding out of its cup and handle pattern and past $2,100/oz.

The cup and handle pattern is super bullish and there’s little chance Gold is going to bust out of it while capital favors US equities.

Hence, the Gold to S&P 500 ratio is the most important indicator, at present, for Gold and the Gold market.

Capital has moved out of bonds and into stocks and commodities.

Worries over accelerating inflation, stagflation, and the like will trigger capital rotating primarily into Gold and Silver instead of stocks.

In the meantime, the US Dollar has put in a bottom and could trend higher or remain stable well into the third quarter of the year. That could keep a lid on inflation expectations.

Some leading indicators that could indicate Gold is closer to a renewed uptrend (and not just an oversold rebound) include Gold’s performance against the S&P 500 as well as foreign currencies.

As an investor, I'm positioning myself in the highest quality companies with the most upside potential. I'm looking for and investing in companies that have a defined value, fundamental quality, and have the potential to be 5, 7, and 10 baggers when the real bull market begins.

In our premium service, we continue to identify and accumulate those quality juniors with considerable upside potential over the next 24 months. To learn the stocks we own and intend to buy that have at least 3x to 5x potential and more, consider learning more about our premium service.

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.