What's Required For A Gold Bull Market

Dec. 12, 2019 2:09 AM ETGLD, IAU, PHYS, UGLDF, SGOL, UGL, BAR, DGP, GLDI, GLDM, OUNZ, GLL, AAAU, DGLD, DZZ, DGL, DGZ, GLDW, UBG, QGLDX, IAUF3 Comments6 Likes
Steven Saville profile picture
Steven Saville
1.49K Followers

Summary

  • We use a long-term weekly chart of the gold/SPX ratio with a 200-week MA to identify gold bull and bear markets.
  • Unfortunately, at this time, the chart is noncommittal because gold/SPX bottomed in August 2018 but is yet to make a sustained break above its 200-week MA.
  • There was a net gain in the SPX over the periods when gold trended downward and a net loss in the SPX over the periods when gold trended upward.

Editor's note: Originally published at tsi-blog.com on December 10, 2019.

[This blog post is an excerpt from a recent TSI commentary]

During a gold bull market, the "true fundamentals", as indicated by our Gold True Fundamentals Model (GTFM), will be bullish most of the time. However, even during a bear market, there can be periods of a year or longer when the fundamental backdrop is bullish most of the time. This means that the GTFM can't be used to determine whether gold's long-term trend is bullish or bearish. The historical sample size is small, but the most important prerequisite for the start of a gold bull market appears to be the start of a bear market in US equities.

That's why we use a long-term weekly chart of the gold/SPX ratio with a 200-week MA to identify gold bull and bear markets. Unfortunately, at this time, the chart (see below) is noncommittal because gold/SPX bottomed in August 2018 but is yet to make a sustained break above its 200-week MA. It's possible that a gold bull market got underway in August of last year, but it's also possible that we are dealing with a 1-2 year up-swing within a bear market.

The inverse long-term relationship between gold and the US stock market is not always evident over the short term or even the intermediate term, although over the past two years it does seem like the gold market and the stock market have been taking turns. This is illustrated by the following chart. The chart shows that there was a net gain in the SPX over the periods when gold trended downward and a net loss in the SPX over the periods when gold trended upward.

The implication is that gold's next 3-month+ upward trend should unfold over a period in which the SPX generates a poor return (most likely a significant loss).

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Steven Saville profile picture
1.49K Followers
I graduated from the University of Western Australia in 1984 with a degree in electronic engineering and from 1984 until 1998 worked in the commercial construction industry as an engineer, a project manager and an operations manager. I began investing in the stock market 2 months prior to the 1987 stock market crash and thus quickly learned about the downside potential of stocks. Only slightly daunted by the rather inauspicious timing of my entry into the world of financial market investments, my interest in the stock market grew steadily over the years. In 1993, after studying the history of money, the nature of our present-day fiat monetary system and the role of banks in the creation of money, I developed an interest in gold. Another very important lesson soon followed: gold may be the ideal form of money for those who believe in free markets and a wonderful hedge against the inherent instability of the government-imposed paper currencies, but it is not always a good investment. By mid-1998 the time and money involved in my financial market research/investments had grown to the point where I was forced to make a decision: scale back on my involvement in the financial world or give up my day job. The decision was actually quite an easy one to make and so, at the beginning of 1999, I began investing/trading on a full-time basis. My major concern in deciding to pursue a career in which I devoted all of my time to my own investments was that I would miss the personal interaction that had been part and parcel of my business management career. The Speculative Investor (TSI) web site was launched in August of 1999 as a means for me to interact with the world by making my analysis/ideas available on the Internet and inviting feedback from others with similar interests. During its first 14 months of operation the TSI web site was free of charge, but due to the site's growing popularity I changed it to a subscription-based service in October of 2000. Its popularity continued to grow, although I remained -- and remain to this day -- a professional speculator who happens to write a newsletter as opposed to someone whose overriding focus is selling newsletter subscriptions. My approach is 'top down'; specifically, I first ascertain overall market trends and then use a combination of fundamental and technical analysis to find individual stocks that stand to benefit from these broad trends. This approach is based on my experience that it's an order of magnitude easier to pick a winning stock from within a market or market sector that's immersed in a long-term bullish trend than to do so against the backdrop of a bearish overall market trend. Fortunately, there's always a bull market somewhere. I've lived in Asia (Hong Kong, China and Malaysia) since 1995 and currently reside in Malaysian Borneo.
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