My bullish stance on gold is old hat by now, but that does not take anything away from my excitement to keep riding this profitable play.

I have also for a while been favoring gold bullion relative to US industrial stocks, actually relative to most mature-market equities. As a matter of fact, I took Richard Russell to task on July 25, 2007 on his argument that gold’s outperformance of the Dow Jones Industrial Index might have been reversing when viewing the ratio’s long-term trend line. Let’s see how this has panned out over the ensuing few weeks.

The chart below shows the gold price relative to the Dow. A rising trend line indicates gold outperforming industrial stocks, and vice versa.

1909-1.jpg

Source: Market Master

The yellow metal has undoubtedly had the better of the Dow since breaking out of a two-month sideways pattern in mid-July. Running a MACD oscillator on the relative chart still shows gold outperforming, but it is starting to look somewhat toppish and the yellow metal may first catch its breath near-term before the outperformance trend is continued.

Just to put things properly in perspective, here is the long-term chart of gold relative to the Dow.

1709-3.jpg

Source: Plexus Asset Management (based on data from I-Net Bridge)

For my money this is a primary trend that is not about to be reversed in a hurry. (Short-term counter-trend movements are, however, quite likely from time to time.) Place your bets and let your profits run.

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