Przemyslaw Radomski: So, gold didn’t move below $1,500 and it rallied recently – the worst is behind us, right? It might be, but there are reasons to think otherwise and in today’s essay we will feature two charts (courtesy by http://stockcharts.com) that should make you think twice before investing your whole capital in the gold market.
The first one features the Dow:Gold ratio.
The ratio consolidated in the past few months (as gold did), but since the consolidation took place above the declining resistance line, it confirms the breakout and makes the situation more bullish for the ratio and more bearish for gold. Unfortunately (for those who “like” gold – we fall into this category), the next resistance level is quite far from where the ratio is today and this translates into a possibility of a significant decline in gold.
The second chart for today is the ratio of gold to prices of corporate bonds.
This suggests that the decline is quite likely to continue and since this ratio moved very much in tune with the price of gold (no wonder – gold is in the numerator of the ratio), it serves as an indication that gold might decline as well.
Summing up, positive long-term fundamentals for gold are in place and we will most probably see much higher gold prices in a few years, however, the medium term is not that clear and we believe that caution is necessary.
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Thank you for reading. Have a great weekend and profitable week!
ETF DN Related Tickers: SPDR Gold Trust (NYSEARCA:GLD), Market Vectors Gold Miners ETF (NYSEARCA:GDX), Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), iShares Gold Trust (NYSEARCA:IAU), Goldcorp Inc. (NYSE:GG), Barrick Gold Corporation (NYSE:ABX), Kinross Gold (NYSE:KGC), Yamana Gold (NYSE:AUY).