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Gold Pops As The Stockmarket Drops
By: Julius de Kempenaer | May 14, 2019



After a struggle with resistance around its previous high around 2940, the stock market, S&P 500 index, failed to break and started to come down off its highs.

A lot of political and fundamental issues and news are influencing the behavior of market participants at the moment and this uncertainty results in a rally of the VIX index at the moment.

In times like this people start to look for safe havens. These can be (government) bonds, preferably at short maturities, or defensive sectors but also GOLD.

Scanning some headlines across the internet and also here at Stockcharts.com I noted an increased interest for the price of Gold recently.

Martin Pring recently wrote about that in his MArket Roundup article that you can find here. And as you know Relative Rotation Graphs can be used to visualize any universe as long as you stick to comparing apples with apples and oranges with oranges.

So for this article, I want to focus on the RRG for Commodities and add Gold, which is part of the Precious metals group, to the mix.

The RRG above shows the rotation of the various Bloomberg Commodity Indexes plus $GOLD against the general Bloomberg commodity index.

You can find more information about the composition, the breakdown, and the weights for this index at this link.

The Energy ($BCOMEN) and Livestock ($BCOMLI) are both inside the leading quadrant with energy continuing to do well at high JdK RS-Momentum levels and a steady pace on the Jdk RS-Ratio scale. This indicates a stable trend in outperformance that is still ongoing.

Livestock shows a rapid rotation towards the weakening quadrant. Despite the fact that this is still the strongest group measured on the JdK RS-ratio scale, this rotation suggests some weakness ahead at least for the near term.

Precious Metals



On the RRG for commodities against the general commodity index, Precious Metals is inside the weakening quadrant after a strong rotation through leading.

The precious metals group entered the leading quadrant in December last year and continued to push higher on the RS-Ratio axis until March when it started to roll over and lose momentum. This resulted in a crossover into the weakening quadrant where it still is today.

But as you can see the tail has started to curl upward again and seems to be picking up steam. If this rotation can continue clockwise and move back into the leading quadrant, precious metals are all set for a new relative uptrend.

Gold And Silver



As the Precious Metals group only consists of Gold (75%) and Silver (25%), it makes sense to look at a Relative Rotation Graph of these two commodities against the Precious Metals index ($BCOMPR).

That is done in the chart above. This is a daily chart to highlight the most recent rotation and show the rapid rotation back to the leading quadrant for Gold while Silver is now nose-diving further into the lagging quadrant. It clearly shows that we should have a preference for Gold over Silver for now.

If you open the live version of this RRG you will see that the tail for Silver is generally longer than the tail for Gold and also that Silver makes wider rotations. This is because of the heavy weight of Gold (75%) in that group which drags it closer to the benchmark (center of the RRG) by default.

Gold



The improvement on the RRG follows the recent improvement of the RS-line of Gold vs $BCOM which is now close to breaking above that horizontal resistance level. When such a break materializes a further relative rally is likely and this will pull the tail for $GOLD back into the leading quadrant without hitting lagging.

On the price chart, $GOLD still needs to conquer a very heavy overhead resistance level that is marked by the slightly falling trendline connecting the major highs since 2014 and this seems to be a significant level.

It already "looks" heavy on the weekly chart above already but when you zoom out to the monthly chart, that level becomes even more significant.

A break beyond $1400 in Gold will be very significant! As Martin Pring said: A mega resistance.



From A Stockmarket Or Asset Allocation Perspective



As Gold often serves as a safe haven we should put things into perspective and use a Relative Rotation Graph that shows Asset Class rotation. The chart above is the pre-defined RRG for Asset Classes with $GOLD added to the universe.

It is now the Asset Class with the highest reading on the Jdk RS-Momentum scale and rapidly rotating towards the leading quadrant on the daily time-frame. This visualizes the move out of stocks (SPY) into bond related asset classes and Gold.

For the time being this looks to be the way to go and the preferred positioning for portfolios.

Recently On Twitter

RRG Research
@RRGresearch
· May 11, 2019
Through analysis of relative #momentum and strength, RRGchart visualizes the #trend trajectory of #stockmarkets and thus enables #investors to engage in smart #asset allocation. See how the tradewar is projected to affect the $SPX @StockCharts http://bit.ly/2LBc1gi


S&P Executes Wedge And Rotation To Defensive Sectors Accelerates
Since printing its high on 1 May, the S&P 500 struggled to keep up and make its final push through resistance. In the last three to four days the bulls capitulated and a reinforcement of the 2940-2...

stockcharts.com

Daniel L. Mersebak
@Mersebak
Out of pure curiosity I added GLD to Your collection. Very interesting to see how it fares...Thanks again for a great analysis @RRGresearch @StockCharts pic.twitter.com/kVxlmOecCm

1
3:10 PM - May 11, 2019

See Daniel L. Mersebak's other Tweets


This user added GLD to the predefined universe for US sectors. The position of GLD is right alongside the more defensive sectors and pushing into the leading quadrant, in which they meanwhile have arrived by the way.

Here's the chart with a link to the live version.



Julius de Kempenaer

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