The Churning Process In Gold Takes Out The Weak Hands (GLD, GDX, GDXJ, DZZ, IAU, DGP)

Eric De Groot: Sorry, but that’s how this game is played. Global currency devaluation has been holding equities in a depressionary box and coddling the illusion of economic growth since late 1999.

The purchasing power of the US dollar has been sliding hard since 1934 (see chart 1)

Chart 1: Purchasing Power of the USD:

Global capital adapts to the currency devaluation by seeking inflation hedges such as fractional ownership of global assets, i.e. stocks (see chart 2).

Chart 2: Dow Jones Industrial Average (DJIA) and Z Scores of Secular Trends:

Flow of capital also adapts to the skill of centralized economic management. When confidence centralized management declines, capital adapts by seeking return of rather than on capital. The cyclic out performance of gold (return of capital) over equities (return on capital), illustrated in chart 3 and chart 4, reveals this adaptation.

Chart 3: Dow Jones Industrial Average (DJIA) AND DJIA to Gold Ratio:

Chart 4: Dow Jones Transportation Average (DJTA) AND DJTA to Gold Ratio (DJTAGOLDR):

The secular bull market in gold is not over. The majority retail players, nevertheless, won’t survive the churning process.

Related Tickers: SPDR Gold ETF (NYSEARCA:GLD),  Market Vectors Gold  Miners ETF (NYSEARCA:GDX), Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ), iShares COMEX Gold Trust (NYSEARCA:IAU), Deutsche Bank AG DB Gold Double ETF (NYSEARCA:DGP).

Written By Eric De Groot From Insights

Eric De Groot’s Insights is a forum that uses the markets as the ultimate teacher and provides unique perspective on capital market, economic, and geopolitical trends.  Eric De Groot is a trader/investor, founder and editor of Insights, market & economic researcher and historian, CIGA Eric on, and BS & MBA.

Leave a Reply

Your email address will not be published. Required fields are marked *