Over the past few months, gold has been on a tear. The combination of weakening stock prices and strengthening gold prices could soon trigger a long-term buy signal for the latter and sell signal for the former.
The chart below plots the 3-year rate-of-change of the gold-to-SPX ratio. When this number is positive it is a pretty good sign that it is time to own gold in favor of stocks and when it is negative, vice versa.
There is a very good chance this indicator will turn positive over the next few months, even if gold continues to correct in the short run, triggering the first long-term buy signal since 2001.
And if past bull markets in the gold price are prelude to a new one, then the recent gains are only a hint of what is yet to come.
This is a Hedgeye Guest Contributor piece written by Jesse Felder and reposted from The Felder Report blog. Felder has been managing money for over 20 years. He began his professional career at Bear, Stearns & Co. and later co-founded a multi-billion-dollar hedge fund firm headquartered in Santa Monica, California. Today he lives in Bend, Oregon and publishes The Felder Report. This piece does not necessarily reflect the opinion of Hedgeye.