There are a lot of fundamental reasons to be bullish about gold right now.
Perhaps the most common reason is that the world is a tumultuous place and gold has endured as a store of value over the millennia.
More recently, central banks have been snapping up gold.
Though Turkey has been selling gold because it needs dollars, China remains a big buyer, having added gold to its reserves every month for 17 months.
The dollar remains weak and is likely to stay that way with a Fed chairman who will be looking to cut rates. (A weak dollar is typically bullish for gold.)
But what are the markets telling us about whether it’s a good time to buy gold?
To see how gold is valued compared with stocks, I created charts that show the ratio of the price of gold to the S&P 500.
Let’s pan out to the big picture and look at a 25-year chart.
Right now, gold is trading at 0.65 times the price of the S&P 500.
It appears to be emerging from a 10-year base. It is also sitting right at the 200-month moving average. A sustained break above that level would suggest gold prices are likely to accelerate versus the S&P.
That doesn’t necessarily mean that gold goes up and the S&P goes down. I’m bullish on stocks, so if the index continues to rise (as we know it does over the long term) and gold narrows the gap between it and the S&P 500, gold prices will climb significantly.
For the short term, let’s look at a daily chart over the past year.
The ratio has been falling since January as gold has come off its highs.
It’s getting very close to the rising 200-day moving average, which should act as support.
Additionally, the bottom panel is a stochastics indicator, which measures momentum. It is very oversold and starting to turn higher. That’s a bullish signal.
If this were a stock, I’d be eager to buy it, as it is in an uptrend and coming into support with momentum starting to shift.
Once gold makes its next move higher, if the ratio gets through the 200-month moving average, I wouldn’t be surprised if it moves closer to 1.0, which would mean the price of gold would be in line with the S&P 500.
Even if the S&P didn’t budge from current levels, that would suggest a 56% increase in the price of gold. And if the S&P continues to rise, the gain in gold would be even higher.
There are a lot of reasons to like gold right now. Its relationship to stocks is another one.
Thanks Marc for your input.I value your opinion on matters concerning stocks and commodities. Have a blessed day
Thanks for that viewpoint, I’ve never seen it compared to the stock market that way. Keep writing, I’m reading!
Good article Marc. I believe every portfolio should have at least 15% in gold, silver, platinum and other precious metals. The majority of which should be gold.
The big banks and institutional investors are predicting gold to be from ~$6,200 to $6,900 by the end of 2026. The 10-year Treasury bill probably has to get down closer to 3.75 % before investors switch from the U.S. dollar to Gold as a safe haven from inflation and disruptive world events (e.g, Strait of Hormuz and the war). Also, the DXY seems it must decline into the neighborhood of .97 to attract non-U.S. Dollar denominated buyers. I would like your thoughts concerning these 2 signals as a precursor to increased Gold (and probably Silver et al) price growth.
Marc, you’re one of the smartest guys in the business for a long time. I definitely concur with your reasoning. Where do you see gold reaching by end of the year if this move is confirmed as you say?
Thanks, but could you indicate a buy signal for what kind of gold?
I am being told as early as April 29th, the AI revolution is going to show cracks in the largest major player by Jim Rickards of Wealth Daily. AI is going to implode. Others tell us the AI revolution is just getting under way. There are people who say gold is done, had its run, and we are pretty much finished. I say as the dollar continues to weaken and crash under the mountain of debt this current administration has given away, Gold is being hoarded by Nations and banks as a store of Wealth and as a hedge against the debasement of our paper currency. Gold and silver are a hedge against the unknown. It does not make us richer. It just helps us to sustain a normal life while others sink below the water line. AS the Dollar becomes digital, Physical Gold in your hand GOLD and SILVER will be harder to get, thus driving the unit cost up. Like housing. Not enough. and a very high demand for product causing an escalation in the housing market. I live on Long Island in Nassau County and my 4 Bedroom, 3 1/2 Bath 3500 Sq Foot ranch in a nice sleepy town of East Meadow will fetch $1,125 million now. Is it worth it? NO, but people are pricing up the value due to a shortage in Real Estate vs. demand. It will continue with Gold as long as TRUMP and his cronies debase the value of the Dollar. Its a nice hedge as a long term buy as is Utility Stocks, & RETS like SIMON Properties. Buy and hold, and sit back to watch the 5% dividends roll in while gold thrusts forward 10-20%. DO YOU AGREE?
AI is going to go thru the same thing PCs did in the 1980s. Early PCs were Toshiba, IBM, NEC, Radio Shack, and Apple. Remember MS DOS? How many of those survived and thrived? Apple. Of course there are many specializations, OS, and zillions of applications.
30 years from now we will have the Elon Musk chip in our cranium, and AI will be called something different, and more demanding of our natural abilities and decision making process.
Will it be Heaven or Hell? Or both at the same time?
TY
GDX HAS BEEN VERY GOOD TO ME SINCE JOINING THE CHAIRMANS CIRCLE IN 2022!