Diary of a Financier

Gold Still Following 2009’s Lead, All Part of the Macro Puzzle

In Capital Markets on Thu 6 Dec 2012 at 18:40

In case you forgot, Gold (GC/) is following its 2009 analogue in lockstep. I noted the fractal neatness this morning, but I wanted to update the chart and my thinking here quickly…

GLD is still tracking the classic Cup & Handle pattern, which was also apparent (less classically) in 2009. From space, the two pricetrends are identical, but under a microscope, the rough construction of 2009’s bowl–the rounded bottom that comprises the Cup–spoils the precision. Regardless, the pricetrends and their indicators mesh pretty well:

GLD 2009 v 2012 analogue (daily)- matching Cup & Handles w self similar indicators.

GLD 2009 v 2012 analogue (daily)- matching Cup & Handles w self similar indicators.

Were Gold to continue on the precise path blazed already in 2009, a short term downside remains (only a few days), then a powerful rally will ensue, thereby completing the Cup & Handle.

~~~~

While bullish for the yellow metal, this is another bearish piece of the macro puzzle I’ve been assembling to decode the equity market. Think about it: Historically, Ben Bernanke’s Fed uses 5y5y inflation breakeven as a smell test. 5y5y Inflation Breakeven (TIPS) v SPXWhenever 5y5y nears 2.00%, the Fed feels justified in intervening with monetary policy. Lately, that means emplying unconventional tools like Quantitative Easing. Yet, as I commented in September (just before the announcement of QE3), the Fed has created a credibility trap for itself, since QE3 was implemented with 5y5y Inflation around 2.8%–well above the 2.0% tripwire.

Put the pieces together: Equities correct and gold rallies behind an inflation/panic bid.

–Romeo

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  1. […] for a moment that our portfolio owns 2.5% exposure to the Gold ETF (GLD), which had tightly tracked an analogue to 2009 until recently.  In fact, we added 50bps in exposure to the Silver ETF (SLV) […]

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