I like to track this ratio to see if I can glean what investor sentiment is towards the precious metals in relation to stocks. As can be expected, with the horrific sell off in the precious metals sector this year, coupled with the surge in US equity markets into all time highs, the ratio has been rising since the beginning of this - until the beginning of last month (July) when it began to move in favor of gold once again.
It could very well be that some large investors are seeing US stocks as overvalued and in the latter stages of a bull run compared to a beaten down sector which is undervalued and needs further long side exposure. For whatever reason, over the last 6 weeks or so, gold has outperformed the Dow Jones.
Additionally, the indicator below the price graph has now crossed below what is a signal or trigger line for the first time this year. That would entail that gold is coming back into favor when compared to expensive stocks.
while I do not like becoming too dogmatic when using these ratio charts, they are still very informative as to SENTIMENT.
By the way, I have noted the very clear, textbook perfect example of what is called "Bearish Divergence" on this chart. While the ratio was going on to make new highs the indicator measuring momentum was making a series of lower highs. In other words, the upside momentum was waning. Translation - there appears to be a very slow yet growing shift in sentiment in favor of gold and away from equities.
This does not mean that the stock market has topped out and the bull run is over - what I think it means is that gold is slowly coming back into favor among some larger investors.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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