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Gold and Gold Stocks Readying for Upturn Against Stocks

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Over the coming months, gold is likely to challenge its all-time highs while equities continue a topping process.

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While the focus of this missive is stocks, we want to include an observation on bonds. Recently we wrote about the importance of a potential breakout in the gold/bonds ratio. The skeptics on precious metals will argue that if stocks fall, then bonds will rise, thereby hurting precious metals.

However, the chart below argues that bonds may have already priced in a recession. The 30-year price typically bottoms prior to recessions and then gains during a recession. Over the past 18 months, the 30-year bond price has gained substantially. Sure, it could rise further but the bond market is already quite heavy and that lessens the risk for precious metals.



Gold is nearly a full 13 years into its bull market while the gold stocks are close to a full 12 years into the bull market. The public participation and bubble phase in a bull market develops as the bull market begins to outperform all asset classes. Over the long-term, gold has crushed stocks and bonds. Yet those conventional assets have performed quite well in the last 18 months. Over the coming months, gold is likely to challenge its all-time highs while equities continue a topping process.

Furthermore, as gold breaks out to new highs and inflationary fears emerge, capital will move out of fixed income and into gold and gold shares.

Editor's Note: See more from Jordan Roy-Byrne at The Daily Gold.
No positions in stocks mentioned.

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