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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.
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