A look at the gold charts and whether the precious metal can add to its record-setting gains

Gold's recent underperformance relative to the S&P 500, following a period where its spread widened over 100%, is primarily due to a strong equity market rebound rather than a gold price collapse. Despite this reversion, the article suggests potential for renewed gold outperformance based on technical indicators like the GLD ETF's 315-zone support and the GLD/SPX ratio's RSI holding the 50-level, indicating that gold's long-term trending nature may continue, albeit from a lower base compared to historical bull markets.

Analysis

Gold's recent relative underperformance against the S&P 500 represents a significant reversion after the performance spread between the GLD ETF and the index widened to over 100% by early April 2024. This shift was not driven by a collapse in gold prices but rather by a massive rotational flow back into equities. Despite this, technical indicators suggest potential for a renewed uptrend in gold. The GLD ETF is consolidating above a key support level in the 315-zone, and the resilience of this level through multiple tests points to underlying strength. Furthermore, the GLD/SPX relative strength ratio is at a critical juncture; while it has reversed from a historical resistance trendline, its 14-week RSI is attempting to find a floor near the 50-level, which could support another period of relative outperformance. From a long-term perspective, gold's gain of approximately 240% since its 2015 low, while substantial, remains well below the 650-700% surges seen in previous major bull markets, suggesting the multi-year trend may still have room to run.

Key Decisions for Investors

• Investors should closely monitor the GLD ETF's 315-zone for continued support, as a breakout from the current consolidation pattern would signal the start of a new upward leg.
• Pay attention to the GLD/SPX relative strength ratio, specifically whether its 14-week RSI can establish a floor at the 50-level, as this would be a key technical signal that gold is poised to outperform equities again.
• Recognize that gold's performance is not solely dependent on equity weakness; the asset has demonstrated an ability to rally alongside stocks, meaning a portfolio allocation may be justified even without a bearish outlook on the broader market.
• For long-term strategic allocations, consider that the current bull cycle's gains are still historically modest compared to the 1970s and 2000s, implying the secular trend for gold may remain intact despite recent relative weakness.