A Parabolic Move May Be In Store

Recently, the relationship between gold and the broader US equity market has changed. Generally speaking, a strong equity market accompanies weak or choppy gold prices, and a weak equity market accompanies capital flows into gold. Gold prices rise based on the belief that a sufficiently weak equity market will lead the Federal Reserve to delay raising interest rates and potentially initiate a new quantitative easing program (QE4) to reignite a stalling economy. Currently, however, other factors appear to be motivating the movements in the price of gold. These include:

  • Increasingly complex geopolitical developments
  • Unusually high level of claims on physical gold at the commodities exchange (COMEX) in New York relative to the registered supply – a ratio of 180:1
  • Shifting sentiment with regards to the effectiveness of the Federal Reserve’s use of quantitative easing, and its credibility in general

We are particularly mindful of moments when correlations and relationships across asset classes shift, as these shifts can occasionally occur in very abrupt fashion. Our proprietary models related to price momentum, time inflection points, and pattern recognition suggest a positive risk-reward opportunity to be long gold and underlying gold-related equities. Such positioning may provide modest opportunity, but also offers the chance to capitalize on a parabolic move in gold prices were its relationship to other major asset classes shift abruptly.

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Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the author only. There can be no assurance that developments will transpire as forecasted and actual results will be different. Accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.

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