GoldNuggets — Gold vs Stocks
GoldNuggets Digest: long pauses, gold vs stocks, gold relative returns procession, gold miners vs the stockmarket, gold vs stocks (valuation indicators)
The GoldNuggets Digest is our weekly publication. It contains “nuggets” of Charts & Research on gold, commodities, and macro —issues and insights which we think will be interesting and useful for investors.
Great Gold Bull Consolidations
As the post-peak consolidation in gold wears on, it’s worth reflecting on the path of gold bull markets in general, but especially the previous major gold bull market.
The 2000’s big bull featured several long periods of consolidation, and multiple smaller consolidations — in fact a key feature of gold bull markets seems to be that much of the upward movement happened basically across a series of weeks (and in some cases a few key days).
Or in other words, it doesn’t go up in a straight line even when its going up big.
Gold vs Stocks
Speaking of lines, it seems like the gold/stock ratio is in the process of breaking out of its multi-decade triangle pattern. (source)
If it does breakout then that’s going to be a major development for both stocks and gold (and probably more of an issue for stocks because a key way gold can start outperforming stocks is if stocks go down e.g. as what happened during the up-waves in the early-2000’s and 08/09).
Relative Return Procession
And for the naysayers and doubters, the prospect of gold taking the upper hand vs stocks would in some ways just be a simple and natural progression of the relative return procession seen in this key asset-allocators-guide-chart. (source)
Gold Miners vs the Stockmarket
For completeness, here’s another relative returns chart but for gold miners (both in total return terms, i.e. dividends included) — you see a similar stalemate in miners vs stocks over the past decade.
But one key thought on this chart is: if that gold vs stocks line is breaking out, then this is also going to be one to watch. I consider miners (especially on a relative basis) to be basically a type of defensive stock… and so again, if you did have gold beating stocks because stocks started going down, then you probably also see this one breaking out of that range too.
Stocks vs Gold — Valuations
Lastly, the interesting thing about the gold vs stocks calculus is that while probably everyone knows about how stocks are expensive… gold isn’t exactly cheap either.
Indeed, it’s a little harder to try pick a winner here when both are at an expensive starting point (whereas for example commodities ex-gold and bonds are cheap).
So it almost becomes a thing of which one has the greatest chance of becoming even more expensive… (but again, when it comes to relative performance, the question can simply be phrased as: which one has the greater chance of downside vs holding steady —because that’s another way you can get the relative returns worm to turn).
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The consolidation patterns you highlighted are fascinatnig. Gold's ability to hold above $3900 while digesting gains shows real strenght in this bull market. The comparison to the 2000s bull run is particularly revelant given we're seeing similar macro drivers with debt concerns and dollar weakness. Investors rotating into gold as a hedge against equity valuations makes alot of sense here.