Hi Dave
good question. I don't know the answer
I am glad you can see the correlation on a chart. yes I focussed on that link years ago and have pondered it often.
The correlation between bonds and gold. my views have changed over the years
my views changed with the gfc and the impact of QE. I think the focus this week is on the likely end of bond buying and QE over the next year. The question for me is the likely impact on the spx, asx, gold, copper, oil, silver etc
with the recent US Fed meeting I was reviewing this very question earlier this week and went back over the charts for the last 10 years. if you track it on the chart then isn't that all you need? it is pure ta.
it was blind time back then. QE was new. now we can be guided by the charts since the gfc.
if you view the summary of the US Fed meeting last week you can see a big reference to the Fed ending QE too early in 2013 and how it had a terrible effect on the US.
the charts show that bonds and gold dived from 2013 to 2016.
yet the charts show that the spx held up.
The Fed back in 2013 decided the US jobs and economy had recovered enough to end QE. I see the jUS job and housing recovery as the reason why unrest ended and the reason gold fell back along with bonds. i see gold as driven by unrest and a flight to safety. QE resumed in 2017 and gold resumed its run in advance of that. Did gold rise in 2016 because QE was resuming or because there was a flight to safety or due to inflation? well gold did not rise in 2016. it churned. the rise in gold was last year and coincided with covid. but the goldies had risen from 2016 and i enjoyed every moment of that recovery. it is hard to explain in a blog but as things recover we also see rises in gold, copper, oil, silver and inflation. that is our next period so i am not too worried about it.
The Fed last week said the US economy has recovered enough to end QE but they will continue it for another year. The market is now second guessing that the Fed will end it sooner rather than later.
but the Fed said interest rates will remain low for another 3 years
so where does that leave us. that is the question i ask myself.
interest rates low means retail seek better returns in the SPX and leave their money there. when interest rates finally go up will we see money withdrawn from the spx and put in the bank. I expect so but everything is recovering anyway.
what is the impact on gold if bonds drop. over the years my views have changed.
if the jobs and markets are recovering then the safe market buying of gold reduces. gold price drops. we saw gold spike last year. was it on covid or inflation?
that is a personal choice on the correct theory. a lot go back to the 1979 spike on gold and conclude it was due to rampant inflation. no i prefer a different view that gold rose on unrest and a flight to safety. gold fell in 1980 well in advance of a recovery and inflation falling back. these are just ramblings but i see it as the key to the next year or so. i lived it in 1983. my house interest rates hit 23.5% but my house doubled in value in about one year. incredible times. significant moves. yes gold also spiked but that was over 3 years earlier. hence my musings over the years that gold rises in advance. we have just had a gold spike. will gold rise this year.
You can see on the charts all the gains on the spx over the last 12 years were 120% with QE and minus 20% without QE.
so on average it is a safe guess that as QE ends we will see the spx fall back. but over time it will recover again. we also have europe with QE for a time.
but you need to trade ahead of the market. so last year was the spike in longterm gold. tick
last year then saw gold fade back. tick
i called the levels of the pullback on gold as 1800 tick and when that didnt hold then 1680. tick. we sit there now. we will find out if 1680 holds or not.
the spx has now recovered its losses. surely the run in the spx will fade as QE ends over the next year or so- unknown and pure historical educated guess.
inflation. this brings me to inflation and its impact on gold, silver, copper and oil. that is a whole nother question.
i said two years ago that gold to spike in 2020 and focus on building up plays on the asx in silver, uranium and copper plays with a run in oil last summer. so far double tick
i will be interested to see it unfold and to see your musings on it in due course. i remember you said about me a year or so ago that it is perhaps the way you look at the market that counts. yes ask the questions. the answers may end up right or wrong but at least you are thinking about it all.
the end of QE is likely to dominate this year. we are perhaps back to 2013.
i said last year i saw gold spiking and perhaps rising again to another high over the next 3 to 4 years. i could add to that but it is all just musings and it is blind time just here for me at least
(20min delay)