Gold, Treasuries Still Haven't Broken Into Bull Market Territory

Includes: GDX, GLD, SLV, SPY, TLT, XME
by: Chris Ciovacco

The bulls have a significant feather in their cap in the form of conviction. While numerous fundamental and technical factors point toward negative outcomes for equities, the force with which stocks (NYSEARCA:SPY) have rallied off the October low looks more like the early stages of a bull market, rather than a bear market. Having said that, numerous market ratios, including the gold:Treasury ratio, have not broken into bull market territory yet.

Heading into next week, the flowing statements may begin to weigh on sentiment. From Reuters:

HIGHLIGHTS-Comments by policymakers at Cannes G20:


“There are hardly any countries here which said they were ready to go along with the EFSF (euro zone rescue fund).”


“Every day that the euro zone crisis continues is a day that has a chilling effect on the rest of the world economy.”

“Britain will not contribute to the euro zone bailout fund and we are clear that the IMF will not contribute to the euro bailout fund either.”

“Global action cannot be a substitute for concerted action by the euro zone to stand behind their currency.”

“The job of the IMF is to help countries in distress, not to support currency unions.”

“The world can’t wait for the euro zone to through endless questions and changes about this.”

“You can’t ask the IMF, nor should you, nor ever would I, ask the IMF to put its money into a euro zone bail out fund - that wouldn’t be right.”

“Britain will not invest in a euro zone bailout fund. Britain will not invest in the IMF, so the IMF can invest in a euro zone bailout fund. That is not going to happen.”

This video explores the current ratio of gold (NYSEARCA:GLD) to Treasuries (NYSEARCA:TLT). The ratio helps us monitor the battle between:

  1. Inflation via GLD and deflation via TLT.
  2. The bulls via GLD and bears via TLT.

Like many markets, the GLD:TLT ratio is near a possible inflection point. However, the ratio was near a similar bullish inflection point in 2008 before stocks and gold took another leg down. The points below highlight similarities between 2008 and 2009:

  1. A1 & A2: GLD:TLT ratio makes similar twin peaks.
  2. B1 & B2: Ratio breaks inflation/bullish trend.
  3. C1 & C2: When the indicator, Williams % R, remains weak, the bear market in stocks remained intact (left of C1, right of C2). When the indicator moved back above -20 (overbought), the bear market was nearing its end.

click to enlarge images

Click to enlarge

Click to enlarge

The video expands the commentary on the two charts above and also comments on Italian bond yields.

After you click play, use the button in the lower-right corner of the video player to view in full-screen mode. Hit Esc to exit full-screen mode. If you want to skip the technicals, comments on Europe begin at the 10:33 mark.

If the gold:Treasury ratio were to move into bullish territory, we would be open to high beta ETFs, such as XME, JJC, GDX, and SLV. Until we see more evidence of a lasting turn, we will err on the conservative side.

Some other concerning developments out of Europe via Bloomberg:

World leaders meeting at the G-20 summit in Cannes, France, balked at spending more money to help bail out the euro-area, demanding the region’s own governments first do more to fix the two-year-old debt crisis. Governments are awaiting further details of Europe’s own week-old rescue package before they commit cash, German Chancellor Angela Merkel said on the final day of a Group of 20 summit in Cannes, France.

Disclosure: I am long TLT.