I did a blog post in early Dec showing the bullish setup in gold (link). We got some immediate follow-through, which I wrote about in late Dec here. That strength continued, and on the first trading day of 2021, GDX was up 7%.
Then Friday last week, gold saw a sharp reversal. It’s likely the strength in gold over the past month was temporary and that the gold trade has ended for now. Let me explain.
First, it’s important to understand that gold is in a bull market when stocks are in a bear market (and vice versa). The 40-year chart below shows this nicely.
It's clear that global stocks entered a new bull market in the second half of last year (see my previous post). Thus, it makes sense why gold has been weak since July and should continue to remain that way.
There's more definitive evidence of this. The SPX:GOLD ratio made a breakout.
And here’s SGDJ (Junior Gold Miners ETF) making a false breakdown (so much for that beautiful 6-month rounded-bottom breakout).
Ok, so Stonks > Rocks. What about Bitcoin? The chart below show it’s the exact opposite of Gold. Bitcoin is positively correlated with stocks, and can be thought of as a high-beta stock.
It makes a ton of sense then that crypto has been ripping ever since Nov when we had breakouts in the Nikkei and other global equity indices.
Here’s more definitive evidence. The BTC:SPX ratio recently made a breakout.
BTC has had a parabolic run recently, and so it can continue correcting in short-term, but that would be a buying opportunity. In Q4 last year, I was long BTC from 11K to a bit over 19K, in addition to having a core long-term holding (see post here). I am stalking another entry for a trading position.
And there you have it. Crypto > Stonks > Rocks.