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Gold's Path To $1,500 Could Depend On S&P 500 Staying Below 3,000 - Bloomberg Intelligence

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Gold’s Path To $1,500 Could Depend On S&P 500 Staying Below 3,000 — Bloomberg Intelligence

(Kitco News) - Gold prices have an interesting relationship to the S&P 500 and the metal’s future upside could depend on whether or not the S&P 500 breaks out above 3,000, according to Bloomberg Intelligence (BI).

“Some combination of bearish S&P 500 and bullish gold strategies are warranted,” said BI senior commodity strategist Mike McGlone. “The metal’s upward trajectory will accelerate if the S&P 500 cannot reach 3,000.”

Based on BI’s analysis, gold has a unique relationship with the S&P 500. “Backing away from their current levels last year was a primary spark for the rise in gold prices,” McGlone told Bloomberg this week. “The key thing is if the S&P 500 can’t sustain above 3,000, gold is more likely to jump up to $1,500.”

At the time of writing, August Comex gold futures were last at $1,422.90, up 0.08% on the day and the S&P 500 was at 3,006.83, up 0.05% on the day.

McGlone drew comparisons to gold and the S&P 500 during the start of the Federal Reserve’s easing cycle in 2007.

“At the onset of the first rate cut 12 years ago, the gold-to-S&P 500 ratio was about the same level as it is now (almost 0.5). It peaked just above 1.6 in 2011. Gold is well situated to be a primary driver,” he said in the July outlook. “About six years of consolidation that resulted in multi-decade volatility lows provides plenty of fuel for gold price appreciation.”

The last five years of “caged” trading will support a new bull run in gold prices, added McGlone noting 2013’s peak of $1,700 an ounce.

“Gold has worthy catalysts for price gains after five years of caged trading. It stands to be the primary beneficiary, absent a definitive U.S.-China trade accord that reverses accelerating global declines in sovereign-debt yields, rate-cut expectations and increasing stock-market volatility,” he said.

Gold’s breach of $1,400 an ounce and its surge to fresh six-year highs has lit a fire under the bull run, McGlone stated.

“The foundation for higher gold prices has rarely been stronger. Five years of consolidation, with elevated risk of downside in a dollar that's near multi-decade highs coincident with similar upside potential in stock-market volatility, supports gold prices. Additional backing comes from anticipated Fed easing,” he explained.

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