Gold not in Real Bull Market Yet

Is Gold now back in a bull market? Most gold bugs think so and are quick to proclaim that.

But, could Gold remain in a secular bear market? It hasn’t made a new all time high in 8 years and the perma-bull, financial asset loving crowd certainly believes so.

This is semantics because what really matters is making money and nothing else.

With that said, Gold is not in a real bull market yet. We can still make money but the point is, when Gold enters a real bull market we will make a lot of money and quite easily.

Simply put, other than from 1985-1987, Gold has never been in a real bull market without outperforming the S&P 500.

Take a look at the chart below which plots Gold (black) and Gold against the S&P 500 (blue).

Gold (black) & Gold vs. S&P 500 (blue)

Gold has performed well in nominal terms since 2016 despite underperforming the stock market and that is because its exceptional strength against foreign currencies.

Some Gold-hating, financial-asset loving perma-bulls have compared the recent move in Gold to the one in the mid 1990s. They didn’t do the proper research and analysis because this time around Gold made a new all-time high against foreign currencies (FC).

That is an extremely strong positive divergence whereas in the mid 1990s (and mid 1980s) Gold/FC showed a negative divergence.

Gold & Gold/Foreign Currencies

In both intermarket and relative terms, the key relationship for Gold moving forward is Gold against the US stock market. The ratio is trying to carve out a long-term bottom.

Gold vs. S&P 500

If the ratio can break current resistance and trend towards 0.60, then it will not only mark a multi-year high but will confirm a long-term bottom. Such a move would coincide with further positive fundamental developments for Gold and put the metal on a path to at least retesting its old all-time high at $1900/oz.

A multi-year advance in the ratio confirms a “real” bull market in Gold and we would likely see Gold advancing past $2000/oz.

There is a scenario in which Gold and gold stocks perform well even if Gold is not outperforming the stock market. We’ve experienced that this year as well as in 2016.

However, the larger point is Gold has to outperform the US stock market before it can enjoy a multi-year bull market and a new all time high.