Wednesday, June 26, 2013

Gold continues to realign with commodities

The realignment of gold with other commodity prices is one of the more significant events occurring in global financial markets today, so I have updated the chart (above) I introduced last April.

Last April I also noted the strong gains that equities were starting to register against gold, so the above charts are worth repeating, along with these excerpts from that post:

Over the time period of the second chart above, there have been only two episodes in which stocks strongly outperformed gold over a sustained period: the first, from around 1950 to around 1965, and the second, from late 1982 through 2000. In the first period, real GDP grew at an annualized rate of 4.5%, which is substantially more than the the 3.1% long-term average growth rate of the U.S. economy. In the second period, real GDP grew at an annualized rate of 3.7%, well above average. Real GDP growth was below average in the periods during which stocks fell relative to gold, the worst being from 2000 through 2012, when real GDP growth was an annualized 1.6%.
The upturn in stocks is thus a preliminary indicator that the economic fundamentals may be shifting in favor of equities, and that, in turn, would suggest that the long-term outlook for the economy is improving. Probably not immediately, but some time in the next few years we could see some genuine improvement in the economic fundamentals. Markets are always forward looking, and this indicator (the ratio of stocks to gold) could be one of the most forward-looking of all. Let's hope so.


William said...

Yesterday, Ed Yardini posted a chart of gold versus the 10 year TIPs (inverted scale):

"Investors buy TIPS as a hedge against inflation. They buy gold for the same reason. So it isn’t surprising to see that the price of gold is highly correlated with the inverse of the TIPS yield. Nevertheless, this year’s free-fall in the price of gold is astonishing. It is also astonishing how well it predicted the jump in the TIPS yield.'

Scott Grannis said...

That makes sense, thanks for the heads-up.

Benjamin Cole said...

Ah, the auriferous metal, so enchanting, beguiling...and yet, at bottom, all gold is fool's gold.

Like baubles and Warhol oil paintings, worth what the fevered buyer thinks.

A Warhol "painting" recently sold for $36 million.

Art has been recognized as valuable since before man could even smelt gold. One could say art is essential to man's soul, speaks deeply to him, elevates life from the mundane and thus has enduring value through the generations.

But, of course, that would be mumbo-jumbo, just like most analyses of gold.

One thing is for sure---in recent years, classic art in mainland China has exploded in value, as have the paintings of "recognized" artists in the USA.

Is this explainable by Fed monetary policy?

Or the price of corn shooting skywards---concurrent to this nation's adopting ethanol as 10 percent of our gasoline supply. The Fed did that?

How about the price of oil, manipulated by OPEC?

But we could look at natural gas prices, and that says...what?

And why did gold prices crack just when the Fed engaged in extended QE buying of bonds?

Really, I think the link between the Fed and gold is dead. Most gold is bought in India and China, and they have their own central banks, a growing upper class, and 2.8 billion people.

For all anyone knows, gold could rally from here, if buyers in Chindia want to buy more.

Fools rush in....

McKibbinUSA said...

Decreasing gold prices signals concerns about deflation -- fixed-rate bonds are a hedge against deflation -- but, cash is king during periods of deflation -- I am bearish on financials and growth -- stick with solid dividend and rent-earning value equities instead -- at this point, a good 3-5 year bout of double-digit deflation might be just what the US economy needs to wake up Main Street USA from the horrors of monetary exasperation...

McKibbinUSA said...

How about a gold and TIPS chart -- the market is thinking deflation -- if the market is right, everyone should be taking cover form the coming storm...

McKibbinUSA said...

Can anyone provide assurances that a move by the Fed to end QE will not result in deflation...?

Gloeschi said...

Erm - How forward looking was the market in October 2007 (new all time high)? The worst recession since the 30's depression began 6 weeks later.

Scott Grannis said...

The ratio of stocks to gold was falling (thus predicting a deteriorating economic outlook) from 2000 through 2007, and it dropped over 20% in the second half of 2007. I'd say it did a pretty good job of predicting.

William said...


Weekly 06/26/2013
Equity Fund Outflows -$6.8 Bil;

Taxable Bond Fund Outflows -$8.6 Bil

xETFs - Equity Fund Inflows $1.6 Bil;
Taxable Bond Fund Outflows -$6.4 Bil

Weekly 06/19/2013
Equity Fund Inflows $4.7 Bil;

Taxable Bond Fund Outflows -$508 Mil

xETFs - Equity Fund Inflows $1.5 Bil;
Taxable Bond Fund Outflows -$619 Mil

Weekly 06/12/2013 Equity Fund Outflows -$608 Mil;

Taxable Bond Fund Outflows -$5.5 Bil

xETFs - Equity Fund Inflows $1.4 Bil;
Taxable Bond Fund Outflows -$2.7 Bil

Weekly 06/05/2013
Equity Fund Outflows -$2.3 Bil;

Taxable Bond Fund Outflows -$9.1 Bil

xETFs - Equity Fund Inflows $507 Mil;
Taxable Bond Fund Outflows -$4.3 Bil

Monthly April

Equity Fund Inflows $13.2 Bil; Taxable Bond Fund Inflows $27.7 Bil

xETFs - Equity Fund Inflows $13.4 Bil;

Taxable Bond Fund Inflows $19.7 Bil

McKibbinUSA said...

@William, I just went over your linked chart regarding gold prices and inverted TIP's yields, thanks -- useful...

theyenguy said...

Principles from the Dispensation Economics Manifest ... ... comes the biblical revelation that Jesus Christ, is operating as stewart in dispensation, that is the household management plan of God to complete and fulfill all things in every age, epoch, era and time period.

The jump on the Interest Rate on the US Ten Year Note, ^TNX, to 2.01% on May 24, 2013, constituted an “extinction event”, that is a cataclysm, which literally destroyed the investment choice offered by bankers as the way of life, and terminated the paradigm of Liberalism. Jesus Christ is operating at the helm of the Economy of God, Ephesians 1:10, and has pivoting the world into the paradigm of Authoritarianism, where the diktat of nannycrats is the way of life. Fiat money died, and diktat money has been coming to life.

Liberalism’s final currency carry trade invigorated, April 2, 2013, as the Euro, FXE, traded up 127.05, and the Japanese Yen, FXY, traded lower from 104.82, this being seen in the chart of FXE:FXY, and being seen in the Bloomberg chart of the EUR/JPY trading up from 119.79.

Yet the EUR/JPY devitalized on the jump on the Interest Rate on the US Ten Year Note, ^TNX, to 2.01%, on May 24, 2013, stimulating derisking out of World Stocks, VT, yet compelling a rise in US Regional Banks, KRE, such as GBCI, SNV, PVTB, SBNY, SIVB, and FMER, constituting Liberalism’s last safe haven investment. The EURJPY will continue to devitalize on a ongoing collapse of Aggregate Credit, AGG, on an ongoing rise in ^TNX, stimulating more derisking and delveraging out of World Stocks. VT.

Debt deflation is underway, as Jesus Christ set the bond vigilantes and the currency traders loose on the markets; the first to call interest rates higher globally, and the latter to wage a currency war, one of competitive currency devaluation, on the world central banks, with the destruction of fiat wealth.

Beginning in November 2012, and then again in April 2013, Gold, GLD, relative to Commodities, DBC, that is GLD:DBC, had strongly sold off; and recovered from its great sell off on June 28, 2013.

Now, the soon coming rise of Gold, GLD, from its bottoming out on June 27, 2013, and the fall of stocks, VT, will be seen in the ongoing MSN Finance Chart of Gold, GLD, Stocks VT, the 200% Long Yen, ULE, and the 200% Short Euro, YCS, where the fall in the Euro, FXE, will exceed, any fall in the Yen, FXY.

It is said that Gold, $GOLD, often trades inversely of the US Dollar, $USD. In as much as the 200% ETF of Gold, UUP, shows that it has now entered a broadening top chart pattern, the US Dollar will be falling lower from $83.50 to $84.50, and Gold will be trading higher from $1,225. This will most definitely be the case as investors seek hard assets, that is something tangible, as Credit, AGG, continues to destabilize, causing even more disinvestment out of Stocks, VT.

Physical possession of Gold and Diktat will be the only two forms of sovereign wealth under the paradigm of Authoritarianism.

In as much as Jesus Christ has pivoted the world from Liberalism into Authoritarianism, there can be no genuine improvement in any economic fundamentals. The ratio of Stocks, VT, to Gold, GLD, that is VT:GLD, will be falling lower. Said another way the ratio of Gold to Stocks, GLD:VT, will be trading higher, as corporate profit and global growth fails, on the “extinction event” of the Interest Rate on the US Ten Year Note, ^TNX, jumping to 2.01% on May 24, 2013.