With the stock market giddy as ever yesterday, gold held up surprisingly well. The June Comex contract was off just slightly even though Dow Industrials tacked on 128 points. Ordinarily, with the broad averages in a moderate short-squeeze, we would have expected bullion futures to give up more of the gains they’d achieved on Friday. In a bigger picture gold looks even more impressive, since it has fallen by only six percent while the Dow has risen 24 percent since the bear rally began on March 6.
The inverse correlation between gold and the stock market has become so pronounced lately that a nimble trader could practically arbitrage one against the other tick-for-tick. Why should gold and stocks be moving in opposite directions these days? The reason is simple: Gold has at last come to reflect anxiety about the true state of the global economy, and there are times like now when that anxiety momentarily abates. Gold bugs can only sit patiently on the sidelines, amusing themselves with the high and low comedy that will always accompany bull traps like this one. For instance, there is the amusing story of how Citi’s trading desk made a whopping $4.69 billion in the last quarter, even though the bank lost money in every other area of its operations. Basically, the bank bet heavily against itself and won. Our friend Dan Denning at The Daily Reckoning lays out this fascinating tale in all of its louche details, so if you want the full story, click here.
June Comex Scorns Target
Getting back to gold, we are impressed with the way it has absorbed the body blows of stock market rallies such as yesterday’s. We should also note that the June Comex contract has stubbornly refused to pull back to an 845.20 target that has been our minimum downside projection since mid-March. We still think that number will be hit before gold can base for another serious shot at $1000, but the already bullish outlook for the intermediate- and long-term would brighten further on a thrust that surpasses 911.80. That would turn the hourly chart bullish — the moreso if it were to occur with the backdrop of a hellish decline in the broad averages. There is so much silly thinking and egregiously misplaced optimism in this bear rally that the next leg down is likely to be a real humdinger.
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Agreed Rick,
The inverse correlation between Gold and stocks has been of real interest to me too lately. You nailed it . Your intuition of market thinking has always surprised and amazed me. Guess thats why I keep coming back every day for updates and insights. You know of course I don’t use charts and graphs. I sort of visualize what is taking place and have done OK with that method. Some months ago I called for a new bottom in April. I am sticking by that projection despite some severe objections from friends and associates up in my parts who insist the market has already bottomed.
Todays bounce was predictable but I see the 22nd as a turn date. Could I be wrong?
Of course I could. History is not written yet. I don’t think I am wrong though so I put my money where my mouth is. Optimism be damned! The larger trend is down and I made my bets along those lines, albeit a little early I think. We have hit a nice tipping point though where Gold declines as the market rises. Just what I have been waiting for. The logic seems to have finally sunk in with the larger market and that is the kind of predictability that I like to see. It strongly suggests that “daboyz” are playing for keeps and it is getting serious now. You cannot manipulate forever. The time comes when the bets are for keeps and this is one of those times. I would not rule out a collapse and capitulation at this stage either. If markets fall below recent lows the sh*t will really hit the fan. Boomers are accustomed to winning and more big losses will simply drive them out of the markets for the forseeable future. As I said before, if the Auto giants file Chapter 11 in the next week or two we are in for a hard turn down. I suspect the Fed will give them more time and money again but that in itself is an expression of no confidence. The crash is still coming and the higher the markets rise in the interim, the lower we will go.
So Hold on to your hats. We are in for a wild ride in the near future.
PS: Nice article today. Really interesting.
Cam
When Cam says “I made my bets along those lines, albeit a little early I think” I am reminded of something attributed to J P Morgan. When asked the secret of his market success he replied, “I always sold too soon.” Maybe it’s just one of those mythological stories, but I like it.
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