Conventional equities have had a great run, but their time is ending as gold is reasserting itself in relative terms and flying high in nominal terms. In the chart below, we graph gold against the NASDAQ, Emerging Markets, S&P 500 and the Russell 2000. All of those markets, with the exception of the S&P 500, have rallied back to their 2007–2008 highs, but have failed at that resistance. Gold against these markets has broken to a two-year high and is well on its way to retesting the peak from March 2009.
Essentially, money is moving out of equities and into gold. We've said all along that before gold begins a bubble, equities must peak and begin a mild bear market. That is now happening. The final piece will be when money begins to flee Bonds. We are already seeing this globally but not universally as bond markets such as Germany and the U.S. remain strong. However, recent weeks should tell you that a peak in equities is providing gold with plenty of firepower. Those who thought it was time to forget gold and concentrate on conventional stocks couldn't have had a more costly idea.
Nevertheless, one could and should consider the gold and silver stocks, which are set for big gains in the next few years. These equities have lagged the metals but this is what has happened in the current and in previous bull markets. Gold just closed at a two-year high against oil and a 10-month high against commodities. This means that margins remain and will be robust in the future. Finally, note that the mining equities are one of the few groups to have made a new all-time high. Keep an eye on GDX and GDXJ as the next move to new highs will be a major buy signal and will usher in a very strong run over the next few years. If you'd like some professional guidance at a very affordable rate, then we invite you to learn more about our premium service.
Jordan Roy-Byrne, CMT