Sean Brodrick: The Cyprus monetary-seizure shock was the first real macro shakeup of 2013. At least, it was the only one so far that’s knocked the wind out of the markets. (Just wait till the realities of the Sequester start to kick in … )
But all told, the Dow Industrials only lost about 60 points in the two trading days since we learned that the tiny Mediterranean nation was planning to help itself to a chunk of its depositors’ personal assets to keep itself from bankruptcy.
Although the country ultimately rejected its proposed 3% to 15% levy on customers’ bank accounts, this situation serves as a terrific reminder that how you store your wealth is just as important as what you buy.
When it comes to the ultimate store of wealth, gold, it has shown weakness this year while the markets have climbed higher. But that inverse relationship has started to change.
In fact, I can see BOTH heading higher from here. Here’s why …
It’s a Good Time to be Bullish
Sure, the bull market has to end sometime. But do you want to talk valuations? Bloomberg has a story saying that even though U.S. stock valuations have more than doubled in the past four years, companies in the Standard & Poor’s 500 Index are cheap.
The S&P 500 Index trades at 15.4 times reported profit, which is below the average 19.9 reached in bull markets since 1962, according to Bloomberg data.
And yet most investors are still bearish.
I can’t blame people who are too scared to trade this market. The doom-and-gloom crowd is beating its drums and roaring about how the hour has come ‘round at last when the market will collapse under the weight of its own corruption.
And yet, much to the consternation of the bears, the broader market keeps going up. AND UP!
I would have hated to have been bearish for the past four years … and if stocks are cheap now, the easiest path is probably up.
And we’re even seeing positive action in gold — the metal that investors recently love to hate.
I remain bullish on gold. Let me show you why with this chart of the SPDR Gold Trust ETF (NYSEARCA:GLD)…
Gold as tracked by the GLD popped higher yesterday. But that’s just the latest in a bottoming process. As you can see from this chart, gold came down to test the bottom of a weekly range that has been in place for months.
Now, gold doesn’t have the all-clear yet. It’s still in a downtrend. I expect gold to go test upper resistance on that channel at $1,660. (That’s 160 for the GLD — I’ve marked it on the chart with a green horizontal line.)
If gold gets above that, then it can go back and test the top of the weekly range.
This strength is happening despite a rising U.S. dollar. It seems both the dollar and gold are safe havens. The normal inverse relationship between the two has broken, at least for now.
A Cautionary Note
I have laid out the bullish case for gold. But as investors, we have to be prepared for the alternative. If gold fails to ignite, that would tell me that it has more work to do on the downside. Gold may move lower — but probably not a lot lower — before it goes higher again.
The next few days could be crucial for the metal, for oil, and for all sorts of stocks.
Good luck and good trades.
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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