Let’s look at two ratios in this article: the stocks to commodities ratio, as well as the stocks to gold miners ratio. The ratio of stocks to commodities has reached another all-time high, much ‘worse’ than the one of the previous down cycle in 1999 / 2000. In the past, such parabolic rises have resolved with similarly steep moves into the opposite direction. In other words, a crash in commodities was ALWAYS followed by steep bounces, and, ultimately, a trend change.
Given accommodative monetary policy, confirmed by the Fed once again, we do anticipate that commodities should recover, resulting in a recovery of the stock market, and a steep improvement in the RATIO of stocks to commodities. In such a scenario, the S&P500 to gold stock ratio should improve as well.
The stocks to gold miners ratio has moved back to its support line, indicated in red. If commodities will recover, the trend change will be reflected in below ratio as well. Now, given the HUGE sell off in gold miners, there is a high probability that their recovery will be steeper than the rise in the broad indexes, leading to a trend change in the stocks to gold miners ratio. If that trend change were to take place, we would go “all in” gold stocks. But first, let’s look for the confirmation.