Gold has outperformed other asset classes over the quarter.
Gold has outperformed all other major asset classes over the last quarter. The chart above shows that up until recently, the yellow metal has returned over 13% for the rolling 3 month period. Not a bad performance when compared to US equities, GEM equities or US Treasury Long Bond which returned 0%, -7% and 6% over the same time period respectively. Moreover, this was definitely a surprise to majority considering just about everyone came into 2014 super bearish on the precious metals sector.
Hedge funds have piled into Gold over the last three months.
However, the situation has changed quite quickly after such a superb rally. With a strong performance, comes the momentum chasers (think dumb money hedge funds). This is quite a repetitive scenario, where Johnny Come Lately’s pile into a hottest performing asset class of the quarter, as they extrapolate previous quarters return into the future. They “hope” the momentum continues for longer so they can also make a positive return.
Now, in all respect, bullish sentiment is not always a sign to worry, especially during uptrends where its quite normal to see bulls dominate bears (as long as it doesn’t become too extreme). However, Gold has not yet proven that it has started a new uptrend. Its price action is rather negative, despite such a strong quarter. As we can see in Chart 2, a technical pattern of lower lows and lower highs still remains in place.
Precious metals have dramatically underperformed other assets.
So where to from here for the yellow metal? Personally, I have maintained that the price of Gold has a date with the $1,000 per ounce physiological and technical level. In any event, whether I am right or wrong, and whether Gold continues its sideways consolidation or breaks down lower, investors should be reminded that the overall Precious Metals sector has dramatically under-performed all other asset classes over the last 3 years. Therefore, this sector of the market is one of the only areas offering value, unlike overvalued and aged US stock bull market or the extremely overextended 32 year secular bull market in US Bonds.