The Recent Decline In Gold
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The below chart is depicted on a daily basis from 2008 through May 17, with the thin blue line depicting the 50dma of the Gold price, Silver price, HUI Index, HUI:Gold ratio and S&P 500. As one can see, the closing price of Gold on May 17 is $1359.10/oz. I find several items on the chart to be noteworthy.
As one can see, the Gold price, seen in the upper plot, had been (relatively) range bound since its highs in the summer of 2011, but has recently dropped below that range. Gold has experienced, from a technical analysis perspective, what can be categorized as a "breakdown," and seems vulnerable, from a technical perspective, to further significant declines. The same general price movements for Gold are seen for Silver, which is seen in the second plot.
In the third plot is the HUI Index, what I consider a proxy for Gold stocks. It has been (generally) dropping since the Gold highs in the summer of 2011. In the fourth plot, one can see that the HUI:Gold ratio has been (generally) sinking during the post-summer 2011 Gold highs as well, and notably is now below the levels experienced during the Financial Crisis.
In the fifth and bottom plot, seen in green, is the S&P500.
(chart courtesy of StockCharts.com; chart creation and annotation by the author)
Click for a larger image
While the recent decline in Gold has generated significant commentary, the broader economic implications of such a decline - especially in light of other dynamics, including highly accommodative monetary policy and the broader stock market that exhibits characteristics of (at least) a very strong rally - seems to lack recognition.
While some have expressed that the decline in the Gold price should be viewed as a "positive" for the economy in general, I see the decline in Gold and Gold stocks - and their seeming vulnerability to further significant decline - as a cautionary signal, on an "all things considered" basis. Recently, I have reiterated my previous view that recent declines in the Gold price signal "deflationary pressures," which is one (highly) disconcerting aspect among many that I see in the current economic environment.
(c) Ted Kavadas