Stocks and gold have been “predictable” as we approach Inauguration Day.
“Predictable” taking the form of our previous “to or through the election” view for the 2024 bull, which was ginned by the Biden administration through fiscal means, and aided when the Fed went dovish at an important pre-election juncture last year.
Now, with Trump’s Inauguration day nearly upon us, it is time to evaluate the next phase, which was a contrarian play where now that at least half the country thinks America is “great again” or on its way to relative greatness again, the stock market and gold may prepare to take opposite sides of that trade after 2024’s general correlation between the two.
Stocks and gold have generally trended up together as the precious metals led much of the 2024 rally (before the October correction began in the precious metals, leading a potential short-term topping situation in the S&P 500 ). Let’s look closer at stocks and gold.
US Stock Market
A simple technical overview of SPX using a daily chart. In the least surprising move of the week, SPX recovered the neckline of a small bearish pattern after dropping below and temporarily activating the pattern. However, as long as SPX remains below the previous short-term high (6021), the bear case is still in play (a bear case that has been expected to come forward sooner or later as a “contrarian” reaction to the economic positivity that half the country felt when Trump was elected).
SPX, along with other indexes, got a big boost on “America great again” (AGG) day #1 (the election) and has been forming this bear pattern into AGG #2. The index is in a short-term downtrend as long as it holds below 6021. From there we have options:
- Bear market begins… or
- A healthy test of the 200 day moving average, within an uptrending bull plays out.
Right now, all we can call it is a mild correction within a major uptrend. Lose the SMA 200, and we can really talk bear. But one step at a time. A drop to the SMA 200 that holds could be quite bullish. This is the technical of it, and does not consider the macro indications to the contrary. Markets will often do what they will do indefinitely, macro indicators be damned (until one day they matter).
Gold
Gold, meanwhile, has been in positive correlation with the stock market for the majority of the 2024 bull phase and spent much of that time as a leader. Indeed, gold and stocks are both technically in correction now with gold having led that situation. Interestingly, gold is making a move to break its correction while SPX continues to be vulnerable to another corrective leg down.
As to gold’s daily chart, it is said that the more times a resistance level is tested the weaker it becomes. Gold is testing resistance at 2720 (+/-) for the third time right now. That could be a charm. But the proof would only be in a breakout that holds and turns resistance to support. The daily chart of gold is bullish. The big picture monthly chart of gold is and has been bullish as well, since driving toward and making the right side rim of a giant Cup in 2020.
Stocks and Gold; Gold/SPX Ratio
A comparison between the two shows how poorly gold has done in relation to stocks over the last 13+ year. It also shows a basing situation in a sound monetary asset vs. stocks, which we have shown to be at high valuation, sentiment and macro indicator risk. While casino patrons want to know which AI stonk is going to be the next big thing, which “Trump trade” is going to be the hottest (or which “Musk trade”, for that matter), gold is on the outs.
Gold spends years, decades sometimes, on the relative outs during macro bubble phases. Our indicator work points to a big picture reversal of this situation. The herds won’t see it coming. But we already do.
In closing, if you have read me over the years, and especially over the last year, you know of a slew of macro indicators I use that are pointing to impending realization of risk in the stock market. Gold may or may not get pressured when that risk is realized, as it was a star participant in the 2024 global bull Olympics, after all. But the chart above, and gold’s inherent risk-off, save haven character should see it handily outperform the stock market once the bear finally arrives for all to see.
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