Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Gold Stocks Investment Wanes - 20th Jul 18
Diversifying Your Stock Investing Strategies is Smart Investing - 20th Jul 18
Custom Global Stock Market Indexes May Be Sounding Alarms - 20th Jul 18
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18
US Stocks Set For Further Advances As Q2 Earnings Start - 15th Jul 18
Stock Market vs. Gold, Long-term Treasury Yields, 10yr-2yr Yield Curve 3 Amigo's Update - 15th Jul 18
China vs the US - The Road to War - 14th Jul 18
Uncle Sam’s Debt-Money System Is Immoral, Tantamount to Theft - 14th Jul 18
Staying in a Caravan - UK Summer Holidays 2018 - Cayton Bay Hoseasons Holiday Park - 14th Jul 18
Gold Stocks Summer Lows - 14th Jul 18
Trump US Trade War With China, Europe Consequences, Implications and Forecasts - 13th Jul 18
Gold Standard Requirements & Currency Crisis - 13th Jul 18
Focus on the Greenback, Will USD Fall Below Euro 1.6? - 13th Jul 18
Stock Market Outlook 2018 - Bullish or Bearish - 13th Jul 18
Rising Inflation is Not Bearish for Stocks - 13th Jul 18
Bitcoin Picture Less Than Pretty - 13th Jul 18
How International Observers Undervalue the Chinese Bond Market - 13th Jul 18
Stocks Trying to Break Higher Again, Will They? - 12th Jul 18
The Rise and Fall of Global Trade – Redux - 12th Jul 18
Corporate Earnings Q2 2018 Will Probably be Strong. What This Means for Stocks - 12th Jul 18
Is the Relative Strength in Gold Miners to Gold Price Significant? - 12th Jul 18
Live Cattle Commodity Trading Analysis - 12th Jul 18
Gold’s & Silver’s Reversals’ Reversal - 12th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Gold, Gold Stocks, and the End Game

Commodities / Gold and Silver 2016 Feb 12, 2016 - 03:27 PM GMT

By: DeviantInvestor

Commodities

We have seen the bottom in the gold market and gold stocks.

Evidence:

  • Examine the 30+ year chart of the monthly XAU (gold stock Index) to Gold ratio. You can see that the downtrend in the ratio has lasted about 20 years – since 1996.  The ratio is now at all-time lows in the form of a contracting triangle.  The triangle has been broken to the upside.

  • In the last 20 years gold has moved upward from under $300 to $1,100 per ounce yet the XAU index has not kept pace, as shown by the ratio dropping from about 0.35 down to 0.03.
  • Gold hit a multi-year low in December at about $1,045. As of February 11, about 1.5 months later gold prices have rallied off the lows by nearly $200 and gold has broken out to the upside.

  • The XAU to Gold ratio on a daily chart clearly shows a breakout to the upside. This indicates that the XAU is moving higher more rapidly than gold, a common indicator of gold market bottoms.  Expect higher gold prices and much higher XAU prices.

  • Another important ratio is the Gold to S&P 500 Index. The following chart shows 30+ years of Gold/S&P ratio and clearly shows a declining ratio from 1980 to about 2001, and a climbing ratio from 2001 thereafter.  However, since 2011, the peak in gold prices, the ratio has collapsed back to 2007 levels.  The next major moves should be up in gold and down in the S&P.

  • The gold to S&P ratio shows the broad trend of investor preference. From 1980 to 2001 investors shunned gold and wanted paper – stocks and bonds, so the ratio declined.  From 2001 to 2011 investors preferred gold and the ratio rose, but since 2011 bonds and stocks have moved higher and gold has fallen.  The ratio shows a declining triangle that usually resolves with an upward movement.  Expect higher gold prices and lower S&P prices.

A few questions:

  1. Would you prefer to own a bond that pays 6% per year guaranteed by a solid government with minimal debt, or gold which pays no interest and costs money to store it safely? Righto – most people would prefer the bond.  But those days are long gone!
  2. Would you prefer to own a bond that extracts negative interest from your principal every year, locks up your capital for five years, and is guaranteed by an insolvent government with massive debt, slowly growing revenues, and rapidly growing expenses – or gold? Righto – gold looks better and better in an era of insolvent governments, zero or negative interest rates, bail-ins, and increasingly expensive and pervasive global wars.
  3. It is pretty clear that:
  • Stocks (S&P, Dow, Nikkei, DAX, Shanghai etc.) are now in a period of declining prices, like 2008. (Look out below!)
  • Bonds are nearing the end of a multi-decade bull market and can only be repaid by governments issuing new debt. (Not sustainable.)
  • Gold and silver prices in the paper markets have been crushed for nearly five years and have recently broken out of declining triangle patterns. (Higher prices ahead!)
  • The gold stock index (XAU) has fallen hard for 20 years and hit its lowest price ever (since 1984) in January, even lower than in the year 2000 when gold was under $300 per ounce. The capitulation crash has occurred and higher prices are ahead.  (Finally!)
  • If investors can get 8% yield from a safe bond they are likely to choose that bond instead of gold. But today the yield is next to nothing, and even negative for over $5 Trillion in bonds, gold has bottomed and will rally substantially 2016 – 2020.  Eventually that realization will impact money managers, investors, and small investors.  The Chinese and Russians already understand it!

CONCLUSIONS:

  • Gold prices have bottomed. The XAU index of gold stocks has bottomed.

  • Central banks and politicians will talk, borrow, and spend but they will not save economies or protect your purchasing power. Gold and silver will protect your purchasing power and might help you sleep at night.
  • Gold stocks will rally and are excellent speculations.
Gary Christenson

GE Christenson aka Deviant Investor If you would like to be updated on new blog posts, please subscribe to my RSS Feed or e-mail

© 2016 Copyright Deviant Investor - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Deviant Investor Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules