We've been recommending gold (NYSEARCA:GLD). We think it has a win-win set up and we think the chart looks much stronger than the S&P 500 (NYSEARCA:SPY). We think gold wins if inflation picks up or if the stock market takes a hit. We think gold goes up if the yen goes up or down from here which is timely ahead of the BOJ meeting this week.
Let's look at the gold chart versus the S&P 500. The chart (below) shows gold in red and green versus the S&P 500 in blue. Gold has clearly outperformed this year.
You can see that gold has outperformed the S&P 500 over the last year. As much attention that the S&P 500 has earned for its breakout, gold deserves more.
The above chart also tells us that gold has clearly moved away from its breakout level (the top horizontal line). Gold came back a couple of times near its breakout and then decisively moved away and higher. That is very bullish.
The S&P 500 however has not retested its own breakout yet. We'd guess the S&P 500 needs to come back and retest the lower horizontal line (it's breakout level). We can't know how strong the S&P 500 is until it retests that breakout.
What would you guess happens to gold when the S&P 500 retests its breakout? We'd guess gold will go back up.
So the set up in the near term is gold has 1) a strong chart of its own on the one hand and 2) will likely continue that trend when the S&P 500 retests its breakout.
Gold Winning Safe Haven From Yen
Gold has another win-win setup forming. It has tracked the yen very closely. If the yen goes up gold has gone up. Now, if the yen falls, we think money will move into gold causing a win-win setup.
Yen up -> gold up
Yen down -> gold up
We love this chart. It shows that gold and yen have moved together.
The yen (NYSEARCA:FXY) is in red and green and the gold ETF GLD is in blue. They've moved in lockstep but you see gold peeking its lead ahead.
Both the yen and gold have been seen as safe-havens.
Japanese citizens have been buying gold like crazy. That means yen insiders (Japan's citizens) are selling yen to buy gold. We like gold because of that. We think the world follows those insiders and sells yen for gold.
That means if the yen sells off because there is too much stimulus from the BOJ this week gold will increase its outperformance.
Yen would also lose its appeal as a safe haven and gold would pick up its slack.
If the BOJ disappoints and doesn't ease as much the yen will strengthen which may pull gold up with it in lockstep.
We view this as a win-win for gold
Gold and inflation win-win
As for markets we think the stock market will get hit. We think it will be caused by inflation spiking yields. Whatever causes markets to drop however, gold will be a safe-haven.
In any case, we think if inflation continues to rise as we've shown it has, gold will also go up as a store of value.
This is yet another win-win setup for gold.
We have several win-win scenarios for gold. If markets get hit gold wins. If markets go up gold can ultimately continue its outperformance seen in the last year.
If the yen gets hit gold wins safe-haven money. If the yen goes up gold can continue in lockstep.
If inflation hits the stock market gold wins. Deflation could be caused by down markets but gold would win anyway as a safe-haven.
We love gold and think it can be a multi-year play with many ways to win.
We love gold.
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Disclosure: I am/we are short SPY.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.