This post is an excerpt from recent report published on TFR Premium.
Over the past few months, gold has been on a tear. The combination of weakening stock prices and strengthening gold prices could soon trigger a long-term buy signal for the latter and sell signal for the former. The chart below plots the 3-year rate-of-change of the gold-to-SPX ratio. When this number is positive it is a pretty good sign that it is time to own gold in favor of stocks and when it is negative, vice versa. There is a very good chance this indicator will turn positive over the next few months, even if gold continues to correct in the short run, triggering the first long-term buy signal since 2001. And if past bull markets in the gold price are prelude to a new one, then the recent gains are only a hint of what is yet to come.