"So what gives? Why is gold rising while stocks appear locked in a strong bull market? Are they indeed presently inspired by the same developments?"Our answer was no. That the action in gold -- motivated by the view that the Fed would remain dovish, the dollar weak and, perhaps less so geopolitical risk (although there have been moments [yesterday]) -- was at odds with the action in stocks (motivated by a strong economic backdrop, positive earnings growth and pent up demand).
"Essentially, therefore, if gold has it right, ultimately, the stock market has it wrong. Meaning, for the Fed to remain dovish and the dollar to continue to trend lower, the global backdrop we've been illustrating herein isn't long for this world. Or, conversely, if the stock market has it right and gold has it wrong, ultimately, the Fed will nudge rates higher and the dollar's descent will stop dead in its tracks. In which case, the current rally in gold is on very shaky ground."We then charted gold and the dollar over the past year:
Which is, essentially, a picture of the aforementioned ascent of gold and descent of the dollar.
And we closed with:
"Something's gotta give!Keeping you posted, here's the action since September 7th:
We'll keep you posted..."
This (gold giving way to a rising dollar) would be more consistent with our view of the present economic backdrop. Although this indeed could be quite the messy relationship going forward, as geopolitics stay in the way...