Bespoke Investment Group has taken an interesting view on gold’s trading pattern over the past four months, pointing out that the precious metal has had a hard time sustaining any sort of rally. Indeed, each rally has led to a peak that is lower than the peak preceding it, or what Bespoke calls “a relentless downtrend.”
Their chart does the heavy lifting, but here’s the gist of their argument. Gold’s high point this year occurred at the end of February, when it hit $1,784 (U.S.) an ounce. After recovering from a subsequent selloff, it rebounded to $1,714 an ounce, or 3.9 per cent below the earlier high point.
The next rebound took gold to $1,690 an ounce – the next, to $1,678. And so on. The last rebound sent gold to a high of $1,617 an ounce on July 3, which is 9.4 per cent below the February high.
This is hardly encouraging for gold investors, especially with gold still showing a remarkable correlation to the broader stock market. Friday is a case in point. A lousy reading on U.S. payrolls for June sent the S&P 500 down 1.2 per cent in afternoon trading. Gold provided no haven from the broad selloff, falling 1.6 per cent for its biggest dip in more than two weeks.
Hardcore gold enthusiasts like to argue that gold is the safest alternative to paper money – and that, of course, includes the U.S. dollar. Yet, with investors rushing into U.S. Treasury bonds on Friday and driving the U.S. dollar index to its highest level in nearly two years, the market seems to have another view of what is safe.