Stocks or Gold? Choice Has Been Relatively Easy

By: Chris Ciovacco | Tue, Jul 15, 2014
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Forecasting vs. Paying Attention

Forecasting World Cup to Brazil

A few weeks ago, forecasters were almost ready to hand the World Cup trophy to Brazil. The future is difficult to predict, and thus, Germans are celebrating today. In recent weeks, it has been easy to find bullish comments related to gold based on inflation worries, European banking risk, and Iraq. Should we consider gold over stocks?


Gold Falling Hard Monday

As of 1:00 p.m. EDT Monday, the gold ETF (GLD) was down 2.40% on strong volume. GLD normally trades 6.1 million shares in a full trading day. With three hours to go Monday, over 7 million shares had exchanged hands. From Bloomberg/Businessweek:

Gold headed for the biggest decline in almost seven months as Portuguese banking concerns eased and equities advanced, diminishing demand for haven assets. Portuguese 10-year government bonds were set for the biggest two-day advance in a month on speculation that Portugal would contain financial woes at one of its banking groups. The Standard & Poor's 500 Index added as much as 0.6 percent after Citigroup Inc. reported profit that topped analysts' estimates.


Observable Evidence Has Favored Stocks

As noted in this video clip dated July 11, from a investing (longer-term) perspective, stocks (SPY) have looked more favorable relative to gold. The chart below allows us to monitor the performance of gold relative to stocks. Despite the gains made by gold in recent weeks, the longer-term evidence has continued to say, "I'd rather own stocks".

GLD:SPX Weekly Chart

The zoomed-in version of the same chart (see below) allows us to see the moving averages, which have been in the longer-term bearish camp for gold relative to the S&P 500 Index. The charts are always subject to change; thus, maintaining a flexible and open mind is always important.

GLD:SPX Weekly Chart 2


Indian Demand For Gold Hampered

India is an important market for the yellow metal. From gold-eagle.com:

"In India, gold is religion. India's love affair with gold is timeless, spanning centuries and millennia."

Recent developments in India tend to put a drag on gold. From MarketWatch:

Overall, we believe that physical demand has remained short of expectations, the latest price increase having been driven largely by speculation," wrote Eugen Weinberg, commodity strategist at Commerzbank in Frankfurt, in a note. Pointing to India, Weinberg said the country's decision to maintain a 10% import duty on gold and silver "is also likely to have a dampening effect on future gold demand expectations. In conjunction with a rather below-average monsoon season, this points to below-average gold demand from India."


Investment Implications - Evidence Will Guide Us

On July 10, we noted that despite last week's Europe-driven pullback in stocks, the longer-term outlook for equities was still favorable. Monday's intraday gains in the stock market have done nothing to change that view. While many investors are concerned about stocks being overpriced, the evidence we have in hand continues to call for an allocation to U.S. stocks (VTI) and leading sectors, such as technology (XLK). We will continue to monitor the incoming data with an open mind. Tuesday morning brings a report on retail sales.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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