Rock Beats Paper and Gold Echoes QE2
Gold is behaving similarly to how it did in late 2010 as it outperforms Treasuries. Could a renewed push into risk assets soon be at hand?
How cruelly sweet are the echoes that start, When memory plays an old tune on the heart.
- Eliza Cook
While trading certainly has been slow this week heading into Labor Day weekend as the world awaits monetary action from Super Ben and the League of Extraordinary Bankers, it appears that intermarket trends are echoing the latter half of 2010 when QE2 was first brought up at Jackson Hole. I've been noting in my various Lead-Lag Reports here on Minyanville that conditions continue to be favorable for equities and that risk-sentiment appears to still be in the very early stages of turning in favor of stocks despite the S&P 500 (IVV) being near multi-year highs. A push into new high category could soon come with a little nudge from the Fed.
That very nudge seems to be likely if gold is right. Take a look below at the price ratio of the SPDR Gold Trust ETF (GLD) relative to the iShares Barclays 20+ Year Treasury Bond Fund (TLT). As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/TLT.
Note that gold has been a very poor performer on a relative basis compared to Treasuries as the summer crash of 2011 took place and in the aftermath of eurozone fears. However, the most recent price action appears to be quite telling as it mimics the outperformance last seen two years ago when Bernanke signaled QE2's start. If you remember that time period well enough, you'll recall how powerful an environment it was for stocks and other risk assets.
Could gold be saying that risk is just about to increase in a meaningful way, sending equities to soaring heights? As noted in my various writings, reflation is likely to happen either organically, or it will be forced upon us through some form of global coordinated central bank action.
Good for the economy? Maybe. Tradeable? Yep.
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