I’ve been in Las Vegas to speak at the Traders Expo, and let me tell you: this is a great place to enjoy life.
But no matter how much fun is going on around them, some people just have to be obsessed with the negative. We continue to see more and more sectors test all-time highs but I can’t tell you how often people ask me whether they should be SELLING stocks. Why??
They won’t buy for the simple reason that a bunch of financial news headlines are trying to get clicks by selling fear.
That’s something we just don’t have to be worrying about.
What About Gold?
Today we’re going to talk about safe havens and how this relates to stocks. Importantly, this includes Gold which we want to be watching very carefully because I believe it is in the process of entering a new bull market.
If we can break out above $1,600 in Gold, I think we see all-time highs. But for now, shorter-term, I think a more neutral position is best.
Long-term yes, we believe it goes much higher, 10,000 (!) potentially. But short-term, there are some extremes in positioning that need to be worked off.
Despite some dynamics I’m seeing right now – which I talk about below – Gold does NOT always move inverse to the market. Historically the correlation is closer to zero. So this is not something we believe. Keep in mind that correlations are constantly changing.
Bigger picture, we do believe Gold goes on to make new, all-time highs.
Safe Havens Struggle
When stocks are in strong uptrends, they tend to not only do well on an absolute basis, but they outperform their alternatives as well. Two obvious ones are Gold and Bonds.
So if stocks are going to fall hard, like so many people keep telling me, we are likely to see a bid in Precious Metals and US Treasury Bonds. As it turns out, however, we’ve only seen the exact opposite – both of those assets struggling below overhead supply.
Back in August I made the case that if stocks were going much higher, as we thought they would, then the S&P 500 will hold support at the late December lows relative to both Gold and Bonds.
This is what that chart looks like now:
Notice how the buyers stepped up where they had to. Also take note of the series of higher lows and higher highs the past few months.
The way I (continue to) see it is that if there is pressure on Bonds and Gold, it’s hard for stocks to fall too hard. In fact, as long as we’re below overhead supply in these two “safe havens,” we want to spend more time looking for stocks to buy, not looking for stocks to sell.
Here is what US Treasury Bonds look like, stuck below resistance we saw in 2016. The last time Bonds were up here, interest rates and stocks both spiked very aggressively. Buying Bonds and selling stocks was a terrible idea. I think the same today:
We’re seeing something similar in Gold. Here is the Gold Mining Index Fund back up to former overhead supply from 2013 and 2016. Last time Miners were up here, selling stocks and buying Gold was a terrible idea. I think the same thing today:
If these charlatans preaching the end of the world are finally going to be right (I doubt it), then the bet we’re making is that it will show up in the Gold and Bond markets. It hasn’t yet and we’re not betting it will any time soon.
Now, can Bonds and/or Gold go up and stocks go up too? Yes, definitely, especially in shorter-term time horizons. But, more importantly, is that the bet we want to be making in the current market environment? My argument is no.
This continues to be a market environment where we want to be looking for stocks to buy. If you see Gold Miners and/or Treasury Bonds breaking out to new highs, we’re most likely having a much different conversation. But that’s just not the case today. New all-time highs in stocks is a characteristic of an uptrend. We want to buy the things going up, not the things going down.
And for those of you interested in gold’s next move, check out this presentation for my latest forecast for the yellow metal.