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.
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.
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.