TLT - What Is Gold Telling Us? (Technical Analysis)

Summary

• Gold, and the rest of the precious metals space, has curiously been outperforming equities, bonds, and cryptocurrencies of late.
• Precious metals have been battered by a strong U.S. dollar and rising rates for months running.
• Could the strength in precious metals be pricing in an imminent reversal in USD and rates?

Amidst the recent widespread selling in equities and most other risk assets, precious metals have shown a curiously high degree of relative strength.

For one, gold ( GLD ) has outperformed the S&P 500 ( SPY ) since mid-August, where the SPY has fallen -17% since. Below is the chart of the ratio of GLD/SPY, where we may also see that price has been basing since February 2021. Most recently, the GLD/SPY ratio has been heading higher, amidst selling in equities.

Weekly Chart: Ratio of GLD against SPY

While it is not a secret that bonds ( TLT ) have been selling off, courtesy of an aggressive Fed, what is surprising is that gold has been stealthily outperforming bonds since mid-July. This is impressive, given that gold itself has come under sharp selling pressure from rising interest rates. We may see from the chart of the ratio of GLD/TLT that gold has been steadily making higher lows against TLT, and is pushing to new highs.

Weekly Chart: Ratio of GLD against TLT

Even against Bitcoin ( BTC-USD ), which has somehow managed to not make fresh lows despite the widespread selling in risk assets, gold is clearly outperforming. The ratio of gold against Bitcoin first broke out of a large 16 month base in June, and is now consolidating in a tight flag pattern.

Weekly Chart: Ratio of GLD against Bitcoin

I am using gold loosely as a proxy for the precious metals space. In my subscriber-only post, I delved deeper into the precious metals space to assess the relative strength amongst gold, silver ( SLV ), platinum and palladium. Gold is actually the weakest when compared against its precious metal peers.

More importantly, what is the relative strength in the precious metals space telling us?

For months, precious metals have been hammered due to a strengthening USD and rising yields. Could the strength in precious metals be pricing in an imminent decline in both the USD and yields?

That is one thesis, but only time will tell. Most importantly, I will let price action confirm or reject this thesis.

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