Wednesday, February 5, 2014

Gold reversal may signal lows for U.S. stocks

 Gold futures settled yesterday with a 5.3 percent gain since Dec. 19, when the price of the precious metal set a three-year low. Most of the advance took place this year as the Standard & Poor’s 500 Index, also shown in the chart, fell 5.2 percent.

“Gold prices have done exactly what they should -- move independently of financial assets,” Colas, based in New York, wrote two days ago in a report. Declines in the metal’s price would show investors are feeling “real pain,” paving the way for a peak in stock selling, he wrote.

The price of gold is among five indicators that may point to lows in share prices, he wrote. Colas also cited the Chicago Board Options Exchange Volatility Index, or the VIX, along with oil prices, yields on Treasury securities and money flows.

The VIX’s close three days ago, 21.44, was the highest since December 2012. The index would have to rise above 26 before sending a reliable “buy” signal, the report said.

Falling oil prices, 10-year Treasury yields of less than 2.5 percent and an end to outflows from exchange-traded funds might also lead to a rebound in stocks, he wrote.

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