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Gold to Bears: Pay Attention


Talk of QE4 (not QE3) appears to be the catalyst for renewed strength in gold, and for risk assets, that means the bullish environment might get even more bullish.


As I grow older, I pay less attention to what men say. I just watch what they do.
--Andrew Carnegie

Gold has been a disappointing investment relative to equities since the Summer Crash of 2011, but leadership may be just about to return to the precious metal. Despite the "end of the world" trade and negative narrative, stocks have been a better play to put money to work for over a year now. However, SuperBen and the League of Extraordinary Bankers may force gold back into bull mode. Dovish minutes suggesting another round of quantitative easing means that negative real interest rates (i.e. interest rates after inflation) will likely get even more negative. Historically, gold does well in negative real rate environments, which seems to be almost a certainty on central bank paranoia of the economy not reaching escape velocity.

I suspect expectations for coming QE4 are the catalyst for gold. I say QE4 because I consider the fear trade of the last several months into bonds to be the equivalent of QE3, as money poured into fixed income scared about deflation. I spoke about this at length on CNBC in a segment which can be seen here. The next rotation into emerging markets and the metals and mining space seems ever more likely as each day goes by.

Take a look below at the price ratio of the SPDR Gold Trust ETF (GLD) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/IVV.

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