Sentiment Speaks: Can A Stock Market Rally Cause Gold To Rally Too?

Many are expecting gold to rally on a market decline.

History has shown gold often rallies along with the equity market.

Summary of near term expectations.

For those that follow me regularly, you will know that I have been tracking a set-up for the SPDR Gold Trust ETF (NYSEARCA:GLD), which I analyze as a proxy for the gold market. I also believe that gold can outperform the general equity market once we confirm a long-term break out has begun, and I still think we can see it in occur in 2018. This week, I will provide an update to GLD. While I have gone on record as to why I do not think GLD is a wise long-term investment hold, I will still use it to track the market movements.

So, every week I read the latest and greatest insights in the metals market. Yet, there is nothing new. The mantra's have remained the same for years: "The stock market will collapse, society will end as we know it, and gold will be at $10,000 overnight."

Well, maybe I am exaggerating a little, but I think you already know the gist of the perspective.

But, hold on one second. Have we completely forgotten recent market history? Did not the metals complex bottom out and rally around the same time that the stock market did in early 2016? Did we not see one of the largest rallies in gold's history occur during a massive rally in the equity market too?

Well, based upon that perspective, why do we continually read about how the collapse in the stock market will now cause gold to rally skyward? Should we keep our heads buried in the sand regarding how gold really reacts through history?

I can assure you that there are many times over the last 20 years that we have seen multi-year rallies in the stock market coincide with multi-year rallies in gold too. Just review some of my old articles where I clearly point those out. And, if you don't believe me, well, then maybe you should look at the history of gold and equities rather than simply believe what you are told by others.

So, maybe you should be "hoping" for an equity market rally rather than an equity market collapse if you want you see the value of your gold holdings increase? Nah . . . who would ever believe that can happen!

Personally, when I look at the GLD, I really don't care what the stock market is doing or not doing. All I care about is what I am seeing in the GLD chart. And, what I am seeing has me simply amazed at how bearish so many in the market are while GLD is sitting just below its break out point. In fact, I am seeing more people giving up and selling their positions, just as gold sits just below its recent highs. Can you imagine how extreme negative sentiment will be if we do fall back to the 120-122 region for a more protracted pullback?

But, anecdotal evidence is not something that we trade or invest off of, nor should it ever be. Rather, we are much more focused on patterns, along with supports and resistance. And, since the pattern off the December 2015 low is a strong 5 wave structure, it means I have to give the bulls the benefit of the doubt when a bullish set up appears which can break us out.

Yet, unless we are able to strongly exceed the high we struck this past week in the GLD, I have no immediate bullish set up to speak of. Rather, as long as we remain below this past week's high in GLD, we only have a bearish set up, pointing down towards the 120-122 region. So, until the bulls can gain further strength early in the coming week, this is going to remain my expectation in the near term.

Housekeeping Matter

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Disclosure: I am/we are long Physical metals and various mining stocks.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I own puts in GDX and GLD to hedge my portfolio.