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Random Thoughts: The Gold Scold, Part Deux

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A commodity oddity screams for attention.

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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:
  • The tape is overbought in the short-term; the bulls hope to work off that condition as a function of time rather than price-while holding S&P 1671 (the 50-day moving average).
  • It's hard to believe that when we launched Minyanville, there were no blogs, there was no Facebook (NASDAQ:FB), and no Twitter. Talk about a seismic shift in the media landscape.
  • Sears Holding (NASDAQ:SHLD) is up 40%...this month?
  • Buy the heavily shorted stocks and sell the most loved stocks?
  • I still don't get why stocks added to the Dow Jones Industrial Average (INDEXDJX:.DJI) (Goldman Sachs (NYSE:GS), Visa (NYSE:V), Nike NYSE:NKE)) got such a pop; there is very little indexing for that...index, relatively speaking.
  • Note the emerging dandruff in JPMorgan (NYSE:JPM); if it breaks $50, it "works" to $43 through a pure technical lens. Given its importance to the financial complex-and the banks' importance to the overall tape-we should toss this on our radar through an "if-then" lens.
R.P.

Twitter: @todd_harrison

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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.

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.

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