What Do Stocks and Bonds Tell Us About Gold’s Future Moves? (GLD, IAU, SGOL, PHYS, DZZ)
Przemyslaw Radomski: Gold prices fell last Tuesday for the first time in eight days and Wednesday gold fell below $1,600 an ounce as buyers stayed on the sidelines ahead of the meeting of the U.S. Federal Reserve whichannounced Wednesday a modest increase in its efforts to reduce borrowing costs for businesses and consumers. The Fed voted to extend its existing “Operation Twist” asset-purchase program through the end of the year. In plain English, the Fed will keep selling short-term bonds, and using that money to buy long-term bonds.It gets its name not from the Chubby Checker song but from the Fed trying to twist the yield curve.
The Fed has decided to play a game of wait-and-see.
Recent U.S. economic data has been as soft as the belly of the Pillsbury Doughboy and the Fed’s decision reflects that. There is growing concern that the economy is once again faltering into the summer months after the false start of a relatively strong winter. The Fed’s policy-making committee said in a statement that it expected the economy would continue to grow at a “moderate pace,” but it noted that “growth in employment has slowed in recent months,” even as inflation has declined.
We will now turn to today’s technical portion with the analysis of the S&P 500 Index chart and try to see whether Ben Bernanke’s speech had any influence on the general stock market (charts courtesy by http://stockcharts.com.)
Let us now take a look at two ratio charts, that measure gold’s strength relative to other assets. We’ll begin with gold to bonds ratio chart.
Now, let’s move on to the Dow to gold ratio chart.
Summing up, the situation for the general stock market appears bearish from the medium-term point of view. The Fed wants to see lower prices of stocks and commodities and it seems that they will. The situation for gold is also rather bearish for the medium term as the gold to bonds and Dow to gold ratio charts suggest that another decline may be in the cards. More details including gold, silver and mining stocks analysis (with price targets) is available to our subscribers.
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Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), iShares Gold Trust (NYSEARCA:IAU), ETFS Gold Trust (NYSEARCA:SGOL), Sprott Physical Gold Trust (NYSEARCA:PHYS), PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ).
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