Dorn: Why Are Equities Strong And Gold Weak?

We are living through what could go down in history as the greatest financial crises of our lifetime. In 2008 and early 2009, global markets were in turmoil and trillions of dollars were erased from the economy worldwide. Amid chaos and confusion, gold is the “go-to” metal for safety.

There is a saying that “Gold loves the smell of blood, but hates the sight of blood.” As the markets careened downward, more and more people were bailing from the markets and rushing to what they believed were safe havens: bonds, gold, cash. People were eating, living and drinking risk aversion and wanted out of anything related to equities as quickly as possible. Amid this Armageddon scenario that many gold bulls have been predicting since the 70’s, gold managed to rise to over $1000 before falling back.

The question is: is that all there is? Has gold seen its top or is there more to come?

Decreasing risk-aversion was shown by the number of advancing issues vs. declining issues on the NYSE starting on March 23, 2009. My colleague Dave Harder and I described this to the to subscribers of www.thetradingdoctor.comon March 27, 2009 We specifically indicated that when advancers outnumbered decliners by a ratio of 2:1 for 10 straight days ( AD10), this indicated that equity markets had reached some sort of bottom. Historically, his presages a rise in the broad equity markets for a least several months.

Here is a look at Dave’s oscillators for gold as of the week of April 13, 2009:


The long-term oscillator for gold and gold stocks peaked on February 23 at 989 and is still declining, suggesting continued weakness.

Here is a daily chart of GLD (the exchange-traded fund that tracks the price of physical gold). As you can see, it peaked at about the same time as physical gold and has been in a downtrend ever since.


The gold stocks, as represented by GDX are faring a bit better than the metal. Part of this is due to the fact that gold stocks are tracking with the equity markets. Nonetheless, the MACD on the chart below indicates that it is also on a sell signal as of April 5.


Will gold regain its luster again? I believe it will, but no one knows for sure. If the hyperinflationary thesis plays out, gold and gold stocks will have a meteoric rise. The question is when this will happen. Is this is simply a consolidation for gold before moving higher (the pause that refreshes for the gold bulls) or will gold go lower before it again begins to move up. Right now, the instruction is to trade the June gold futures from the short side on any rallies to 900-920.

Such rallies are anticipated to occur with down movement in the equities markets and will be a lure for people to buy gold when they should be selling it. I believe that the bear market rally in equities is not over, that April will be a strong month and that any uppage in the gold futures to the levels mentioned above is a shorting opportunity.


Dr. Janice Dorn is the only Ph.D. (Brain Anatomist) and M.D. (Board-Certified Psychiatrist and Addiction Psychiatrist) in the world who actively trades, writes commentary on the financial markets and manages a subscription-based website. Dr. Dorn has been trading the gold futures markets full time since 1993. She has written over 1000 articles on trader and investor psychology, and mentored over 600 traders and investors.She writes on all aspects of trading psychology and provides a real-time trading service on her website: TheTradingDoctor.com.