Gold to Nouveaux Bulls: Correction at Hand

By Michael A. Gayed  OCT 24, 2012 1:00 PM

If the Bernanke Put means inflation and higher risk assets, it simply won't happen based on expectations right now.



As the game enters its glorious final weeks, the chill of fall signals the reality of defeat for all but one team. The fields of play will turn brown and harden, the snow will fall, but in the heart of the fan sprouts a sprig of green.
-- John Thorn

In my various Buzz & Banter postings (subscription required), Lead-Lag Reports, and writings here on Minyanville, I have continued to stress that intermarket trends are warning of a correction in risk assets.  As I said yesterday on CNBC, this is not about earnings, but about something bigger – the return of the deflation pulse.  The market is saying that “unlimited may not be enough” given the Fed's announcement to pump $40 billion/month to increase hiring.  This seems almost unthinkable given the blind belief by what I call “nouveau bulls” that the “Bernanke Put” means stocks can't go down. 

And yet, that appears to be what is happening.  How long it lasts is unclear, but the deterioration within the markets is now undeniable.  Many things should have happened post-QE3, but didn't.  Remember how gold (GLD) was supposed to soar?  Take a look below at the price ratio of the SPDR Gold Trust Shares (NYSEARCA:GLD) relative to the S&P 500 (NYSEARCA:IVV).  As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/IVV.

Gold relative to stocks bottomed mid-August as talk of monetization from the European Central Bank was coupled by hope for aggressive monetary stimulus from the Federal Reserve.  That hope resulted in a nice spurt of outperformance in the precious metal.  But notice what has happened since then. Gold is now underperforming equities despite QE3 and the reflation that one would think should come with it.  It remains to be seen if this is simple indigestion or not, but the message here is clear: If the Bernanke Put means inflation and higher risk assets, it simply ain't happening based on expectations right now.  And yes – that likely means a correction is at hand.

Twitter: @pensionpartners
No positions in stocks mentioned.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.