While the S&P, Dow, Nasdaq and Russell run around the playground and ride the see-saw, is there a place of refuge for the responsible to take advantage and earn some money? Over at HeadlineCharts there are four 28-year charts; one shows the past 25-year rally in bond prices, another illustrates the dramatic fall in the S&P, a third highlights the nascent rally in the dollar, while the last for the Commodity Research Bureau (CRB) displays recent fear but also a level of optimism and opportunity. Why?
In an US election piece at TheStockAdvisors.com a case is made for the SPDR Gold Trust (GLD) assuming a McCain win. In a baby and bathwater situation we are presented with an opportunity not lost on the author:
I also continue to believe that we are still in the early stages of what will prove to be a multi-year boom for commodities, and much of the selling we have seen in gold appears to be primarily emotional reasons.
While the sentiment is correct, the vehicle of opportunity is not gold (yet!). But lets look at it in steps.
(1) The secular bull market in commodities is alive and well. What the commodity market is experiencing is a cyclical correction within a broader bull market. The stock market is also experiencing a cyclical move (not a correction) within the context of a secular bear market. While the picture of each decline is cringe worthy, the CRB index is only testing 2007 lows while the S&P is doing its best to test 2002 lows having surpassed all other support levels leading up to today.
(2) So why not gold? Three things make gold less attractive as an investment in the near term.
First, the dollar looks to have found some footing - even if this strength is only relative, i.e. other currencies are devaluing faster than the dollar. One only has to look at the ratio of the US dollar index to the Euro index to see it has moved off its 16-year low of 0.45 to its current value of 0.60 (it peaked at 1.43 in 2001).
The second reason against gold is its the only commodity to hold the bulk of its 2001 to 2008 gains; from a 2001 low of $255/oz it peaked at $1,033/oz in the early part of the year before falling back to the current price of $839/oz (18.8% loss from high / 229% gain from low). Silver, on the other hand, moved from a low of $4.01/oz in 2001 to a high of $21.44/oz and currently trades at $11.06 (48.8% loss from high / 175% gain from low). As an additional reference, oil is down 47.7% from its high of $147.90 and is currently testing its 200-week Moving Average (MA).
