I have been watching gold like a hawk this week. The main reason has to do with the fact that the way it has been trading has boggled the minds of many gold investors. Specifically, I am referring to how gold prices have moved step by step with the equity markets.
As you can see from the following chart, gold has pretty much tracked the S&P in terms of its movement. When the market rallies, gold rallies. When the market sells off, gold sells off. Even the bullish fundamental news that has come out this week (higher than expected inflation) has failed to push the price of gold above its range bound trading (640-660). So the question becomes…is this a new trend? Or simply a short-term reaction to what has happened in the market over the last couple of weeks. In other words, will gold continue to track the market or will it finally decouple and trade by its own merits?
This question is magnified by the fact that I believe we are still in the infant stages of this stock market decline. If the stock market continues its decline and gold continues its correlation to the equities markets, I would expect the price of gold to break below the range and drop to the 590 to low 600’s level. On the other hand, if we see gold decouple from the equities market...
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