Random Thoughts: The Gold Scold, Part Deux

By Todd Harrison  SEP 13, 2013 10:37 AM

A commodity oddity screams for attention.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

Two years ago this week, I penned The Gold Scold as the yellow metal tickled $1,900; it was in response to a column I wrote a day earlier, which asked whether the gold bubble was about to pop.  The widespread response from the investing universe was venomous as the gold bugs believed their beloved metal could do no wrong.

Fast-forward to this morning; gold has lost one-third of its total value, yet the battleground remains ripe with emotional fervor. The bulls believe this commodity is the last-gasp store of value in a world of fiat currencies while the bears maintain that, well, it's a rock.

This column isn't about the absolute levels of gold as much as the relationship between that asset class and stocks. 
Given the insane amount of liquidity being pumped into the system formerly known as capitalism, the rising tide should be lifting all boats.  That's been the case for a mighty long time, and the divergence is something we should respect, if nothing else.

Take a look at the chart below, which tracks gold vs. the S&P (INDEXSP:.INX) since the beginning of 2009 when The Grand Experiment began to take root. 

Note the steady correlation between gold and the S&P, with the latter matter leading the way higher.  A funny thing happened earlier this year: Gold lost its luster, not only on an absolute basis, but perhaps more concerting, on a relative basis.  Indeed, if the past is in any way prologue to the future, this is about as loud of a warning siren as we could ask for, absent having tomorrow's newspaper today.

To be sure, these are historic times with unprecedented measures, and policy has made beggars out of bears over and over and over again.  The ursine frustration is well-documented and capitulation seems to be the word of the day; we saw massive short-covering this week on the heels of the perceived Syrian resolution. 
This story remains untold, however; while no one measure or indicator is absolute, we would be wise to expect the unexpected as we turn our attention to the FOMC next week.

Random Thoughts:

Twitter: @todd_harrison

Position in SPY.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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