Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Cyclical Assets vs. Gold

Commodities / Gold and Silver 2018 Dec 30, 2018 - 04:20 PM GMT

By: Gary_Tanashian

Commodities

Cyclical Assets vs. Gold

In January of 2018 we noted a cyclical leader (Semiconductor Fab Equipment) in trouble: Semi Canary Still Chirping, But He’s Gonna Croak in 2018.

We also ran a series of articles featuring the happy-go-lucky 3 Amigos (of the macro) in order to gauge a point when larger herds of investors would become aware of cyclical issues facing the global (including the US) economy. Each Amigo (SPX/Gold Ratio, Long-term Treasury yields and a flattening Yield Curve) would ride with the good times but signal an end to those good times when reaching destination (Amigos 1 & 2 got home but #3, the Yield Curve is still out there). Here is the latest Amigos status update from October: SPX/Gold, 30yr Yields & Yield Curve.

Today I would like to stick with a cyclical macro view, but do so through a lens filtered by the ultimate counter-cyclical asset, gold. As market participants, we are lost if we do not have road maps. That is why we (NFTRH) gauged Semi Equipment vs. Semi (and Tech), the unified messages of the macro Amigo indicators and many other breadth and cyclical indicators along the way to safely guide us to Q4 2018, which has been a challenge for many, but business as usual for those of us who were prepared.


But gold, which all too often gets tied up in an ‘inflation protection’ pitch by commodity bulls, is one of the best signalers of a counter-cyclical backdrop as its best characteristic is that of value retention and capital preservation. Gold, being outside the constellation of risk ‘on’ assets does not pay any income, does not leverage good economic times and does not inherently involve risk because it is a marker of stable value. Hence its under performance during cyclical good times (leverage and all) and its out performance during troubled counter-cyclical times.

So let’s take an updated look at gold vs. various cyclical items as we close out 2018, a year we began on alert (after a “bull killer” upside melt up played out in January), forecast and managed a summer upside grind to test the top (typical of markets, SPX went higher than originally expected) and rode with the Amigos to a blessed Q4 crack in the macro.

These charts are not meant to imply an outcome for 2019, as we have a few viable scenarios for stocks, precious metals and markets in general (to be refined based on incoming information). The charts are simply a snapshot of today, for you (assuming you, like me, depend on such macro indicators) to gauge the macro. Let’s use weekly charts to get a more filtered, less noisy view of the proceedings.

SPX/Gold (AKA Amigo #1) has dropped right into the area that was originally expected to provide support. This was actually equivalent to the anticipated ‘take back’ of the entire Trump rally from Q4 2016. Many indicators and nominal markets/sectors have already taken back the rally, while the nominal S&P 500 has not (yet) quite gotten there.

Regardless, the ratio hit our upside target (ref. the above-linked Amigos update and the monthly chart of SPX/Gold) and dropped like a stone. Perfect. Now, if relief is going to come to the macro, the noted support area should hold.

The World (ex-US) iShares (ACWX)/Gold ratio has also dropped to the equivalent of an area that nominal ACWX is expected to find support at.

The CRB/Gold ratio has really gone in the tank right along with inflation expectations, as anticipated. Commodities are cyclical and a healthy global economy would see them rising in relation to the value anchor. It’s not happening. CRB/Gold is testing the Q1 2016 low from which the most recent ‘inflation trade’ began.

Looking within the commodity complex the GYX (Industrial Metals)/Gold ratio is dropping hard. The IMs are highly cyclical and as you can see they gapped upward vs. gold in Q4 2016 upon the election of a 70s style, fiscal reflation-bent president. Walls, infrastructure and commercial buildings need base metals and materials after all. If the macro is going to find short-term relief, the green shaded zone looks like a good spot for it to do so. But don’t be surprised if the entire fantasy is closed out in 2019 with the closing of the noted (blue) gap.

Speaking of Materials, I like to view the US Materials sector vs. Gold as well. Here we are at a possible relief point, but Materials being a primary ‘Trump Trade’ we can watch for the gap to close in 2019.

WTIC/Gold ratio is one I have written a lot about lately (actually, we’ve repeatedly noted it flipped over as a bullish Gold/Oil ratio), in helping prepare subscribers (and myself) for a phase of bullish gold mining fundamentals. As far back as November 4th we were on the bullish case.

As you can see, if the ratio is going to bounce now would be a likely time. Nothing sustainable goes straight up or down. NFTRH was on this case from the beginning and the ratio has since made our point. Now it can bounce along with some macro relief.

/

Bottom Line

There are many other useful ratios and macro indicators, involving gold and otherwise. But the above give a useful view telling us that a potential area for at least temporary relief is at hand for cyclical macro markets. In other words, initial downside targets are in as measured in gold.

We have anticipated a stock market bounce, which is finally here. It appears a likely time that other cyclical asset ratios can bounce as well, unless inflation really is dead and buried.

Subscribe to NFTRH Premium (monthly at USD $33.50 or a 14% discounted yearly at USD $345.00) for an in-depth weekly market report, interim market updates and NFTRH+ chart and trade setup ideas, all archived/posted at the site and delivered to your inbox.

You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar and get even more by joining our free eLetter. Or follow via Twitter ;@BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2018 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules