I have highlighted two very different periods: a period when gold formed multi-year cup-and-handle patterns. That was around the bottom of 2000 and around the bottom of 2015.
In the second half of the pattern, we saw a rally in both sectors: gold and bond yields (highlighted by the second rectangle). The rallies started from (approximately) a local low for gold, and as bond yields peaked, so did gold.
The really interesting thing is what happened in the areas marked with the third triangle. Then the price of gold rose while bond yields fell.
In the previous pattern, this continued until we saw an increase in returns. That, my friends, was the peak of 2008 which preceded deep declines in gold, equities and – most importantly – mining stocks.
What we see now is that bond yields are falling, and they just went back up when the gold got to the top.
Given the analogy above, the recent top was likely a very big top – one that marks the end of a medium-term upturn, and a clear sign that investors should prepare (or be prepared already) for a wild ride to lower rates. levels – especially in mining stocks.
Of course, this isn’t a signal that’s likely to work in days; it will likely have a critical impact in terms of months (and perhaps weeks). And it doesn’t detract from some long-term opportunities in the precious metals market.
So yes, looking at the movements in two-year bond yields and how they have affected gold in the past may not look as bullish as most people make it out to be. There is also a bearish sign here – a pretty deep sign.
But wait, there’s more!
Bearish signs ahead
Price movements and price patterns are both important, but we all read the phrase that time is more important than price, right? When the time is right, the price will reverse – was the continuation of this quote.
With the above in mind, let’s go back to the period typically considered bullish for gold.