...this (gold positive correlation with USD) could be an ominous sign for the equities market ahead.
If you look at recent history, positive correlations between gold and the dollar tend to coincide with drawdowns in the S&P 500.
We saw it during the mini-bear market of 2018 where gold/dollar correlations turned positive early on and only began to reverse as the market bottomed.
We saw correlations turn positive again in the lead-up to the COVID recession and remain there for much of the next year.
2021 turned out to be the false signal where it didn't work, but it signaled correctly again just before we entered the 2022 bear market for stocks & bonds.
Now, we're seeing it again. This trend could still be early as well since higher U.S. inflation, a potential dollar spike fueled by the BoJ and big Asian buying in gold all act as potential catalysts to push this correlation further into positive territory.
Takeaway: the more positive the gold/dollar relationship gets, the deeper the drawdown for U.S. stocks.
