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Gold investors have seen huge gains this year, but the recent underperformance of gold versus U.S. stocks is vexing to those who waited to bulk up on the precious metal, or those who added to positions over the past three months.
Even though gold has recently stumbled relative to equities, technicians still see long-term reasons to be bullish on gold, particularly should the current stock rally fizzle.
A common means for equity investors to gain gold exposure is with the SPDR Gold Shares Trust, an exchange traded fund that tracks movements in the precious metal. The GLD is up about 22% so far in 2011 versus slightly negative performance in the Standard & Poor’s 500-stock index. But over the past three months, the GLD has shed nearly 5%, while the S&P 500 has climbed by around 4.5%.
Yet charts and market signals continue to point out reasons why dispirited gold investors may maintain their gold exposure. Key to the case for gold is current market technicals concerning stocks, since investors tend to move into gold as a haven during times of extreme duress for equities.
“Typically, gold does tend to outperform when equity moves lower, or at least sharply lower,” said Katie Stockton, chief market technician at MKM Partners.
This was the case in early August, when concerns over Europe’s sovereign debt woes mingled with the Standard & Poor’s downgrade of U.S. government debt to push investor from risky assets like stocks and into gold. The GLD climbed 14% in the first three weeks of August, while the S&P 500 lost 13%.
As the S&P 500 flirts with key resistance levels at the 200-day moving average–near 1264–and the year-to-date breakeven–near 1257, the GLD has risen steadily above short-term moving averages since the middle of 2009. The S&P 500 fell 0.1% to 1258 recently.
Stockton said the GLD remains above key support levels. She said that while GLD could experience minor technical resistance near last month’s highs around $171 and $173, it doesn’t face major resistance until it climbs toward August and September highs around $184. GLD rose 0.3% to $168.75 Wednesday.
To Stockton, stocks are “primarily a momentum story,” and longer term stocks do not set up well technically for continued gains. “August took us below important support levels in major indices across the world,” she said.
In the options markets, traders have accelerated the purchase of put options to set up new positions in the GLD. This is a contrarian indicator: As put options are often used to hedge long positions, an abundance of opening put-buyers indicates that institutional investors and hedge funds are getting long gold, said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.
Detrick said that current trends previously coincided with periods of technical strength for GLD, particularly in early August.
“Institutions are using those puts as hedges, and we expect this pattern to continue,” Detrick said. “To us, it looks like we’re seeing signs for a pretty good size bounce for gold in the short term.”
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Quote “DECEMBER 7, 2011, 2:29 PM ET In Gold Vs. Stocks Fight, Gold May Yet Have the Last Laugh” key word MAY. Stock may go up, housing may recover, aliens may land in spaceship. MAY
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