Wednesday, January 26, 2011

Gold Diverges From the Equity Market

Since the beginning of the year, gold and equities have diverged: gold has sold off but U.S. equities have kept rising.

The bullish argument for both gold and equities was "Duh, inflation makes it go up!", so it's hard to understand how you could now be bullish on equities but not gold.

And, there's another interesting divergence - the Chinese market, which has been falling since mid-November. Over the past several years, it has been a leading indicator for the U.S. markets.


Anonymous said...

It's not just China. Emerging markets as a group (using EEM as a proxy) are down >3% since QE was announced, while the S&P is up 6% over the same time. And a lot of individual markets like Indonesia, Thailand, and Turkey have really tanked.

I'm seeing a lot of risky domestic stocks break down too. E.g., XLY and RTH are flat for the year, but XRT is down ~4% and many individual retailers are down 10-20%.

Anonymous said...

Base metals are also deteriorating. Negative since QE and down hard ytd.

getyourselfconnected said...

Where are my gold and silver targets! A little lower please!

From last post,
I missed the big bump in NFLX (see last nights post) but I would not have traded that thing into earnings anyay. Still a long term bear on that company.

Eric said...

The bullish run up in Au was due to sovereign debt/currency debasement concerns (which have not gone away). I guess you can call that inflation if you want to, but to me it's not exactly the same thing, and in any case official inflation numbers are still relatively low.

CP said...

Okay, Eric, but the bullish argument for gold and SPY were the same, which is why the trades were being put on together by funds like Paulson and Tepper.

Jmperry - good observations. I was very impressed when names like CSTR and FFIV started to get whacked hard on earnings.

Unfortunately, a lot of the bullish sentiment and call buying has gone away and we are still sitting above the moving averages. So I am covering shorts.