Gold now Back in Focus

One of the Macro indicators that we follow is the gold-stocks relationship. With deflation seeming to appear to be the main factor the Fed is fighting gold would not seem to be a market to pay much attention.

However, going back to 2004 the relationship that we follow (cash gold versus a basket of stocks comprising all of the New York stock exchange stocks plus the Nasdaq composite) is at a pivot point again. Back in July 2005 the relationship peaked at around 43 to one, the stock index versus an ounce of gold. The relationship then declined to the 20 to one area in both March and July 2008.  This was the establishment of an important pivot area in the relationship.

The decline of stock prices in the following period bottomed the relationship in August 2011 at around 10 to one.  Now with the June and October2013  period we are seeing the relationship once again testing the 20 to one pivot area from the opposite direction. 

In summary, in responding to this relationship we are looking to add long gold positions to our short stock positions in this price area.