Gold in relation to S&P 500 units has now triggered up by MACD on a monthly chart. When this chart was originally created on July 10th in NFTRH, it was noted that the MACD decline was a good thing, as gold bug sentiment was reined in and the over bought, over frothy status was worked off, letting the stock market puff out its plumage and suck the herd back in, confidence-wise.
Well now confidence is a hard thing to find and with the way US and global markets are acting in response to the Washington debt Kabuki dance and all those European officials with all those fingers in all those dykes, it appears something else is at work beneath the surface; something more than just technicals.
Click to enlarge GOLD and SPX analysis chart
Yet the technicals are strong. I have felt that the next big leg in the secular precious metals bull market was going to be driven by fear (for context, recall the unmittigated greed that drove the dot.com bubble of the late 90's). Think about the monthly MACD of this ratio. Think about what happens if it takes a next leg up. There is a lot of running room before this momentum indicator becomes over bought again.
Au-SPX has broken out of the bullish Symmetrical Triangle and folks, that target noted is just a conservative measurement. The implication of the MACD is that the ratio could go much higher than that. The thing has been reloaded, which for bottom feeders and momentum-o-phobes like myself is very good news.
Now think about all the conventional stock holders in all the conventional sectors that their financial advisers and CNBC have put them into. Yes, gold is now gaining headlines, make no mistake. But the herd is still - almost unbelievably - conditioned by the embedded conventions of the previous secular bull market in paper stock certificates.
So yes, gold is gaining exposure that could one day come to be viewed as a contrarian bear signal. But we are nowhere near that point currently. It appears that, with gold breaking higher in all major currencies (with only the conservative Swissy trying to hold its ground), economic deceleration in progress, pressure mounting on policy makers the world over to continue to try to print their way out of their respective (yet oh so interconnected) messes, the public's dawning terror could be fuel for something the magnitude of which has been unseen since Pets.com became all the rage.
Now, I am a 'no hype' guy, so I do not want to get carried away with the bubble talk. But it may come into play as events unfold. Gold is breaking out in commodities (this will discombobulate the 'gold is silver is copper is crude is grains is hogs 'inflation guru' crowd that thinks it is as easy as holding a basket of 'commodity resources'), currencies and markets the world over. I called that MACD over bought when it was over bought. I call it healthy now, with much upside running room.
We have much higher targets loaded on the HUI Gold Bugs index and no, the targets have not yet been activated. This is biiwii land, and we will just await our trigger signals. But the play, in whatever time frame it ends up taking, has been that the crescendo of this bull market will manifest as a bubble; a bubble in fear, as conventional investors start to realize they are the frogs in the rapidly warming water. This is the counter-cycle after all, and the gold stock sector is one of the few that depend on the counter-cycle for its bottom line gains.
That is why I tune out the complaining and moaning about gold stock under performance to the metal. They should under perform during the inflationary growth cycles, for all the reasons laid out in the past and that continue to be shown weekly in NFTRH. And they should gain leverage during the counter-cycle; like the one currently in progress.
Funny, the things a simple monthly ratio chart can conjure. ;-)
Source: Biiwii.blogspot.com
