S&P 500 Vs. Gold: Bloomberg Intelligence Weighs In On The Battle
(Kitco News) - Gold and the S&P 500 are currently in a tight race.
For Bloomberg Intelligence analyst Mike McGlone, this translates into good news for the yellow metal.
“Running neck and neck with the S&P 500 in a tightening cycle should favor gold in most scenarios,” the commodities strategist wrote in a report released Friday.
“Rate hikes are typically coincident with inflation, a best companion for diversifier gold but not stocks. Mean reversion for stocks should also support gold,” he explained.
The S&P 500 index is trading at all-time highs, up over 3% this quarter and setting itself up for its eighth consecutive quarterly gain. Gold prices are also up a little over 3% this quarter, despite having cooled off from recent gains. December Comex gold futures last stood at $1,286.60 an ounce, down $2.10 for the day. The S&P last traded at 2,508.50, up 0.80 point.
Since the beginning of the Federal Reserve's tightening cycle in December 2015, spot gold and the S&P 500 Index are up about the same, just above 20%, McGlone noted.
U.S. stock markets are moving higher despite expectations that the Federal Reserve will likely hike interest rates – a factor known to also be a headwind for gold. However, the metal has managed to post solid gains this year as investors sought refuge given the many unknowns in the marketplace.
For that reason, McGlone sees the odds tipped more in favor of the yellow metal right now.
“With the record-setting stock market barely beating gold, the metal may be worthy of greater attention,” he said.
“Despite all of the attention on stocks, gold may be looking ahead to a more favorable endgame at a steep discount to historical highs with inflation brewing, a potential dollar peak and the lowest CBOE Volatility Index ever.
The higher that stocks go, the greater the reversion risk, apparently supporting gold. The metal's greatest risk is likely a sustained dollar recovery.”