S&P 500 Weakness Relative to Gold?In this weekly chart of the S&P 500 Index denominated in gold (SPX/XAU), I’m observing a noticeable loss of momentum (relative to gold prices). This is evidenced by the decreasing gap between the 50 EMA (Exponential Moving Average) and the 130 EMA at the latest local high compared to the previous one. Additionally, there is a shift in the 'behavior' of these moving averages — they have entered a phase of 'indecision' regarding trend direction. This is quite significant because, for decades, these moving averages have reliably provided a single crossover, followed by a clean multi-year trend.
The last period when there were as many crossovers between the 50 and 130 EMAs within such a short time span was between early 1967 and late 1971. The period marked by the final MA-crossover of that range ultimately led to a dramatic decline of about 95% relative to gold, lasting approximately 8 years and 5 months, culminating in a bottom in January 1980.
I also see additional evidence in the form of price struggling to hold above the 38.2% Fibonacci retracement level from the major cycle peak of late 2000. While price did break above this level several times in 2021 and even managed to hold above it for about six weeks (late November 2021 through early January 2022), it has since failed to reclaim that level. The most recent attempt in February of this year led to a rejection that resulted in a 16% decline over the subsequent eight weeks. Currently, the price relative to gold remains about 15% below that critical level.
If we consider that a 72% decline in the S&P 500 (relative to gold) would be required to revisit the major cycle low seen in early September 2011, it’s clear that there’s significant room for downward movement.
It’s important to note that the S&P 500 could continue delivering positive returns in nominal terms for years to come, regardless of how it performs against gold. The point here is to highlight a potential argument for relative weakness in the S&P 500 when compared to gold, which has been a strong performer so far this year. If this chart is indicative of broader trends, gold has a good chance to continue outperforming, even if this index continues to grind upward.
