My favorite form of technical analysis is intermarket analysis which is the comparison of various markets and sectors. All markets relate in one way or another. The current market cycle is being dominated by macro-related events. Since all markets have had a stronger link than in the past, it makes intermarket analysis very important. By analyzing markets in the context of one another we can decipher or confirm the cycles within the current secular trends.
Most markets and sectors are digesting recent gains after a very strong run in the past six months. Recently we’ve pointed out that Bonds have caught a bid. More importantly, Gold (NYSE:GLD) is strengthening in real terms for the first time since the start of QE 2. Gold outperforms ahead of inflation and underperforms the Commodities sector during an inflationary phase.
Below we chart Gold against other markets.
Note that Gold priced in foreign currencies reached a new all-time closing high today. Keep an eye on Gold against the S&P 500 (NYSE:SPY). It is not far from reaching a two year high. Meanwhile Gold is strengthening against Oil (NYSE:USO) and Copper.
Why should we care?
Since early 2009, Gold has actually underperformed equities and Commodities. When the economy rebounds, Commodities will outperform Gold. When the economy is stagnant and there is the threat of inflation or deflation, Gold will outperform. Also, as we’ve written numerous times, the real price of Gold is a leading indicator for the gold shares. The real price of Gold was stagnant over the past nine months and that is why the gold shares haven’t performed as well as anticipated.
With equities nearing multi-year resistance and the economy at risk of rolling over, Gold is currently quietly reasserting its strength against all other classes (except Bonds). This is the type of activity that precedes big moves in the metal and in the shares. This is setting the stage for the move out of conventional assets like equities and Bonds and into Gold. For more professional guidance and analysis of Gold and Silver and the leading equities, consider a free 14-day trial to our service.
Jordan Roy-Byrne, CMT
Another great read: Gold & Silver Premium Vastly Outperforms with 86.5% Return in 2010>>