Conclusion, Investment Implications, Strategy
Despite some recent chatter in the financial press, our research does not currently indicate a new buying opportunity in gold. Unless the SPDR Gold Shares ETF (GLD) begins to outperform the S&P 500 on a Strategic (quarterly) basis amid a new trend of Tactical (monthly) asset expansion in GLD, gold prices remain in a Strategic price decline and vulnerable to further weakness.
Introduction
In our Jun 15th Special Report, entitled Gold Update: Hanging On By A Thread, we pointed out that the SPDR Gold Shares (GLD) ETF was testing major underlying support at 172.82 amid contracting investor asset flows. We said that it must either immediately resume its major uptrend or begin a significant decline. We were stopped out of our Apr 21st long idea a day later on Jun 16th for a 3% gain, and GLD subsequently declined by an additional 7% into the Aug 10th low.
Since then, however, gold prices have been firming, prompting some recent chatter by analysts in the financial press to buy gold. Our data-driven approach indicates that buying gold is not yet a good idea.
No Bullish Conviction, No Gold Rally
The upper panel of Chart 1 below plots GLD daily since April along with its 200-day moving average (major trend proxy), with a corresponding chart of the daily total net assets invested in GLD and their 21-day MA in the lower panel.
The red highlights show that the total net assets invested in GLD moved below their 21-day (one business month and our Tactical time period) MA on Jun 14th (lower panel), two days before GLD collapsed below its 200-day MA on Jun 16th to indicate the previous Strategic advance was over. The right side of the chart shows that since then, these assets have made several failed attempts to rise and remain above their 21-day MA, keeping the Jun 14th trend of monthly contraction intact.
Unless this trend changes to one of monthly asset expansion — that is, a sustained rise above the 21-day MA — it is too soon to buy GLD (or the physical gold it closely tracks) because there isn’t enough investor conviction to fuel and sustain a price advance.
Gold Has Been Underforming The Stock Market Since June
The upper panel of Chart 2 below again plots GLD daily since April along with its 200-day moving average, this time with a corresponding chart of the daily relative performance of GLD versus the SPDR S&P 500 ETF Trust (SPY) and its 63-day MA in the lower panel.
The red highlights show that the blue relative performance line between GLD and SPY moved below its 63-day (quarterly, our Strategic time period) MA on Jun 16th to indicate a Strategic trend of relative underperformance versus the S&P 500 and has remained below it since. The red highlights also show that this Strategic relative performance trend was tested twice since then. The first time, on Jun 19th, coincided with a failure by GLD to rise above its 200-day MA (upper panel) and immediately preceded a decline to fresh lows. The second time occurred just about a week ago on Sep 3rd, and GLD again appears to be failing from a test of the 200-day MA.
In our view, if gold prices are not outperforming the S&P 500 then why buy gold? We would rather wait until we see some Strategic relative outperformance by gold, coupled with a new trend of Tactical asset expansion (per Chart 1) in GLD to fuel that trend, to establish a long position in gold. And the market is just not there yet.