Gold vs. S&P 500

The gold vs S&P 500 ratio is the lowest it has been in the last couple years, and while the SPX is mostly just seven stocks, even those seven will correct at some point. Doing the rounds today, I couldn’t help but notice how many metals bulls are on the sideline, expecting the miners and metals to get hammered along with the stock market first, before they can start a serious bull run. While this might turn out to be the case, it doesn’t always work that way, and with so many people singing the same tune, it makes it more likely that it won’t play out that way.

With that in mind, I pulled up a chart of gold vs. the S&P, and either everybody else is correct, or we could be witnessing a classic false breakdown in the ratio. I cannot say which it will turn out to be, but I am more comfortable with my mining stocks after seeing this chart, and the stochastics are very oversold as well. So a bounce in this ratio should see gold start to outperform stocks in the near term, then we just have to wait and see by how much and for how long. If its a strong enough reversal in the ratio, the patiently waiting bulls will have to make a tough decision whether to chase higher prices, or wait for a pullback to buy. With so many people in agreement that miners going lower before they mount a big run, its possible they get left behind, its exactly how bull markets shake off as many riders as many riders as it can. Many see the bull coming, but can’t ride it.