market.DO COMMODITIES LEAD OR FOLLOW?
Up to now I've stressed the importance of following a path through the four marketsectors, starting with the dollar and working our way through commodities, bonds,and stocks in that order. The necessity of placing the commodity markets in betweenthe dollar and the bond market has also been stressed. In this chapter, however,movements in the dollar will be directly compared to the bond and stock markets.I'll also take a look at the direct link, if any, between the CRB Index and the stockmarket. Since gold is often viewed as an alternative investment in times of adversityin stocks, gold movements will also be compared to the stock market during the1980s.;Intermarket analysis usually begins with the dollar and works its way throughthe other three sectors. In reality there is no starting point. Consider the sequence ofevents that unfolds during a bull and bear stock market cycle. The dollar starts torally (1980). The rising dollar, being noninflationary, pushes commodity prices lower(1980-1981). Interest rates follow commodity prices lower, pushing up bond prices(1981). The rising bond market pulls stock prices higher (1982). For awhile we havea rising dollar, falling commodity process, falling interest rates, and rising bond andstock prices (1982-1985).Then, falling interest rates begin to exert a downward pull on the dollar (fallinginterest rates diminish the attractiveness of a domestic currency by lowering yieldson interest-bearing investments denominated in that currency), and the dollar startsto weaken (1985-1987). We then have a falling dollar, falling commodities, fallinginterest rates, and rising bonds and stocks. Eventually, the falling dollar pushes commodity prices higher (1987). Rising commodity prices pull interest rates higher andbond prices lower. The lower bond market eventually pulls stock prices lower (1987).Rising interest rates start to pull the dollar higher (1988), and the bullish cycle startsall over again.The ripple effect that flows through the four market sectors is never-ending andreally has no beginning point. The dollar trend, which was used as the starting point,is really a reaction to the trend in interest rates, which was initially set in motionby the trend of the dollar. If this sounds very complicated, it isn't. Let's just consider
Although commodities aren't the main focus of this chapter, it's not possible to exclude them completely. In the relationship between the dollar and commodities, thedollar is normally placed first and used as the cause. Commodity trends are treatedas the result of dollar trends. However, it could also be argued that inflationary trendscaused by the commodity markets (which determine the trend of interest rates) eventually determine the direction of the dollar. Rising commodity prices and rising interest rates will in time pull the dollar higher. The rise in the dollar at the beginningof 1988 followed the rise in the CRB Index and interest rates that began in the springof 1987. Are commodity trends the cause or the effect, then, of dollar trends? In anever-ending circle, the correct answer is both. Commodity trends (which match interest rate trends) are the result of dollar trends and in time contribute to future dollartrends.The problem with comparing the dollar to bonds and stocks directly, withoutusing commodities, is that it is a shortcut. While doing so may be helpful in furtheringunderstanding of the process, it leaves analysts with the problem of irritating leadtimes. While analysts may understand the sequence of events, they don't know whentrend changes are imminent. As pointed out in Chapter 5, usually the catalyst in theprocess is a rally or breakdown in the general commodity price level, which is itselfoften foreshadowed by the trend in the gold market. With these caveats, considerrecent market history vis-a-vis the dollar and interest rates.THE DOLLAR AND SHORT-TERM RATES
Short-term interest rates are more volatile than long-term rates and usually reactquicker to changes in monetary policy. The dollar is more sensitive to movements inshort-term rates than to long-term rates. Long term-rates are more sensitive to longerrange inflationary expectations. The interplay between short- and long-term rates alsoholds important implications for the dollar and helps us determine whether the Federal Reserve is pursuing a policy of monetary ease or tightness.Figure 6.1 compares six-month Treasury Bill rates with the dollar from 1985through the third quarter of 1989. Interest rates had been dropping since 1981 (as aresult of the rising dollar from its 1980 bottom). In 1985 falling interest rates beganto pull the dollar lower. From early 1985 through 1986, both the dollar and interestrates were dropping. By late 1986, however, the inflationary impact of the lower
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
FIGURE 6.1SHORT-TERM RATES VERSUS THE DOLLAR FROM 1985 THROUGH 1989. THE DOLLAR WILLFOLLOW THE DIRECTION OF INTEREST RATES BUT ONLY AFTER A PERIOD OF TIME. THE DOLLAR TOP IN 1985 WAS THE RESULT OF FALLING RATES SINCE 1981. THE LATE 1987 BOTTOMIN THE DOLLAR FOLLOWED A BOTTOM IN RATES OVER A YEAR BEFORE.Short-Term Rates versus U.S. Dollar Index1985 through 1989
THE DOLLAR AND SHORT-TERM RATES
77
market plunge. At such times the interplay between the stock market, interest rates,and the dollar is immediate and dramatic.Rising interest rates eventually began to pull the dollar higher in 1988 (after thestock market had stabilized). Soaring short-term rates provided a bullish backdropfor the dollar rally. By April of 1989, short-term rates had peaked (see Figure 6.2).Within two months the dollar started to weaken as a result.Figure 6.3 compares dollar trends to 30-year Treasury bond yields. While bondswings aren't as dramatic as the T-bill market, the relationship to the dollar is basicallythe same. The bond market, being a long-term investment, is more sensitive to inflationary expectations as lenders demand a higher return to protect their investmentfrom the ravages of inflation. Bond yields turned higher in 1987 as the inflationaryimplications of the falling dollar (and higher commodity prices) began to take hold.The collapse in the dollar during the fourth quarter of 1987 was the direct result ofthe plunge in interest rates resulting from the October stock market crash. The dol-
FICURE 6.2THE DOLLAR FOLLOWED SHORT-TERM RATES HIGHER UNTIL MID-1989. THE PEAK IN T-BILLRATES IN MARCH OF 1989 CONTRIBUTED TO A PEAK IN THE DOLLAR THREE MONTHS LATER.Short-Term Rate versus U.S. Dollar Index1988 and 1989
dollar began to push interest rates (and commodity prices) higher. Although the risein interest rates was itself the direct result of the falling dollar as inflation pressuresstarted to build, the 1986 interest rate bottom set the stage for the bottom in the dollara year later in December of 1987.Heading into the fall of 1987, the year-long rise in short-term interest rates beganto have a mild upward impact on the dollar. However, the October 1987 stock market crash caused rates to plunge as the Federal Reserve Board flooded the monetarysystem with liquidity in a dramatic easing move to stem the stock market panic. Inaddition, funds pulled out of the stock market poured into Treasury bills and bondsin a dramatic "flight to safety". Prices of T-bills and bonds soared, and interest ratesplunged. The sharp drop in interest rates contributed to the plunge in the dollar,which immediately dropped to new lows. In the fall of 1987, the dollar collapse wascaused by the sharp drop in interest rates, which in turn was caused by the stock
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FIGURE 6.3TREASURY BOND YIELDS VERSUS THE DOLLAR FROM 1985 TO 1989. A CIRCULAR RELATIONSHIP EXISTS BETWEEN THE DOLLAR AND RATES. A FALLING DOLLAR WILL EVENTUALLY PUSHRATES HIGHER (1986), WHICH IN TURN WILL PULL THE DOLLAR HIGHER (1988). A RISINGDOLLAR WILL EVENTUALLY PUSH RATES LOWER (1989), WHICH IN TURN WILL WEAKEN THEDOLLAR.
SHORT-TERM RATES VERSUS LONG-TERM RATES
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FIGURE 6.4RISING BOND RATES KEPT THE DOLLAR FIRM INTO MID-1989. THE SHARP DROP IN BONDYIELDS DURING THE SPRING OF 1989 CONTRIBUTED TO A FALLING DOLLAR DURING THATSUMMER.Long-Term Interest Rates versus the Dollar1988 and 1989
Treasury Bond Yields versus U.S. Dollar Index1985 through 1989
SHORT-TERM RATES VERSUS LONG-TERM RATES
lar rally from early 1988 into 1989 (resulting from higher interest rates) eventuallylowered inflation expectations (pushing commodity prices lower), and bond yieldsbegan to drop in May of 1989 as a result. The fall in bond yields, in turn, helpedweaken the dollar during the summer of 1989.Figure 6.4 provides a closer view of the dollar rally from its December 1987bottom to its June 1989 peak. In May of 1989, the dollar scored a major bullishbreakout above its 1988 peak. This bullish breakout in the dollar (which pushedcommodity prices lower and bond prices higher) also had the result of dramaticallylowering interest rate yields, which contributed to its own demise just a couple ofmonths later. What these charts demonstrate is the close interplay between the dollarand interest rates and why it's really not possible to determine which one leads theother. Although it's not necessary to determine which leads and which follows, it isnecessary to understand how they interact with each other.
Figure 6.5 compares short- and long-term rates from 1985 to 1989. The chart showsthat long-term yields are generally higher than short-term rates. In 1982, short-termrates were dropping much faster than long-term rates, reflecting a period of monetaryease. Not surprisingly, 1982 also marked the beginning of bull markets in bondsand stocks. The dramatic rise in short-term yields in 1988 and early 1989 reflectedmonetary tightness on the part of the Federal Reserve as concerns about inflationintensified, and resulted in the so-called negative yield curve (when short-term ratesactually exceed long-term rates), as shown in Figure 6.6.That monetary tightness, lasting from 1988 to early 1989 was bullish for the dollar. As a rule of thumb, periods of monetary tightness are supportive to the dollar.Periods of monetary ease are bearish for the dollar. (A negative, or inverted, yieldcurve, which existed in early 1989, has historically been bearish for stocks.) Thedrop in both long- and short-term rates that began in April of 1989 preceded a top
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
FIGURE 6.5LONG-TERM VERSUS SHORT-TERM INTEREST RATES FROM 1982 TO 1989. LONG-TERM RATESARE USUALLY HIGHER THAN SHORT-TERM RATES. WHEN SHORT-TERM RATES ARE DROPPINGFASTER THAN LONG-TERM RATES (1982), MONETARY POLICY IS EASY, WHICH IS BULLISH FORFINANCIAL ASSETS. WHEN SHORT-TERM RATES RISE FASTER THAN LONG-TERM RATES (1988AND EARLY 1989), MONETARY POLICY IS TIGHT, WHICH IS BEARISH FOR FINANCIAL ASSETS.Long-Term Interest Rates versus Shojrt-Term Rates1982 through 1989
SHORT-TERM RATES VERSUS LONG-TERM RATES
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FIGURE 6.6DURING THE PERIOD FROM THE SPRING OF 1988 TO THE SPRING OF 1989, SHORT-TERMRATES ROSE FASTER THAN LONG-TERM RATES, REFLECTING MONETARY TIGHTNESS. DURINGTHE SPRING OF 1989, SHORT-TERM RATES EXCEEDED LONG-TERM RATES (AN INVERTED YIELDCURVE), WHICH IS USUALLY BEARISH FOR FINANCIAL ASSETS. MONETARY TIGHTNESS ISBULLISH FOR THE DOLLAR, WHILE MONETARY EASE IS BEARISH FOR THE DOLLAR.Long-Term Rates versus Short-Term Rates
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
in the dollar by two months. While the direction of interest rates is important to thedollar, it's also useful to monitor the relationship between short- and long-term rates(the yield curve). Having considered interest rate yields, let's turn the picture aroundnow and compare the dollar trend to interest rate futures, which use prices insteadof yields.
THE DOLLAR VERSUS TREASURY BILL FUTURES
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FIGURE 6.8BOND PRICES VERSUS THE DOLLAR FROM 1987 TO 1989. BOTH MARKETS RALLIED TOGETHERFROM EARLY 1988 TO 1989. THE BULLISH BREAKOUT IN THE DOLLAR IN MAY OF 1989 COINCIDED WITH A BULLISH BREAKOUT IN BONDS.Bond Prices versus the Dollar
THE DOLLAR VERSUS BOND FUTURES
A falling dollar is bearish for bonds. Or is it? Well, yes, but only after awhile. Figure6.7 shows why it can be dangerous to rely on generalizations. From 1985 to well into1986, we had a rising bond market along with a collapsing dollar. Bond bulls werewell-advised during that time to ignore the falling dollar. Those bond traders wholooked solely at the falling dollar (and ignored the fact that commodities were alsodropping) probably left the bull side prematurely. From 1988 to mid-1989, however,
FIGURE 6.7THE DOLLAR VERSUS BOND PRICES FROM 1985 TO 1989. FROM 1985 TO 1986, THE BONDMARKET RALLIED DESPITE A FALLING DOLLAR. BOTH RALLIED TOGETHER FROM THE BEGINNING OF 1988 THROUGH THE MIDDLE OF 1989. A FALLING DOLLAR IS BEARISH FOR BONDS,AND A RISING DOLLAR BULLISH FOR BONDS BUT ONLY AFTER AWHILE.Bonds versus the Dollar
we had a firm bond market and a rising dollar. Figure 6.8 shows a fairly close correlation between bond futures and the dollar in the period from 1987 through 1989.The bullish breakout in the dollar in the spring of 1989 helped fuel a similar bullishbreakout in the bond market.THE DOLLAR VERSUS TREASURY BILL FUTURES
Figures 6.9 and 6.10 compare the dollar to Treasury bill futures. It can be seen thatthe period from early 1988 to early 1989 saw a sharp drop in T-bill futures, reflectinga sharp rise in short-term rates. A strong inverse relationship between T-bill futuresand the dollar existed for that 12-month span. This also shows how the dollar reacts more to changes in short-term interest rates than to long-term rates. It explainswhy T-bill and the dollar often trend in opposite directions. During periods of monetary tightness, as short-term rates rise, bill prices sell off. However, the dollar rallies.During periods of monetary ease, T-bill prices will rise, short-term rates will fall, as
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
FIGURE 6.9THE U.S. DOLLAR VERSUS TREASURY BILL FUTURES PRICES FROM 1985 TO 1989. THE DOLLARAND TREASURY BILLS OFTEN DISPLAY AN INVERSE RELATIONSHIP. THE PEAK IN T-BILL PRICESIN EARLY 1988 HELPED STABILIZE THE DOLLAR (BY SIGNALING HIGHER SHORT-TERM RATES).
THE DOLLAR VERSUS TREASURY BILL FUTURES
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FIGURE 6.10THE U.S. DOLLAR VERSUS TREASURY BILL FUTURES PRICES IN 1988 AND 1989. FALLING T-BILLPRICES ARE USUALLY SUPPORTIVE FOR THE DOLLAR SINCE THEY SIGNAL HIGHER SHORTTERM RATES (MOST OF 1988). RISING T-BILL PRICES (1989) ARE USUALLY BEARISH FOR THEDOLLAR (SIGNALING LOWER SHORT-TERM RATES).
U.S. Dollar versus Treasury Bill Prices 'Treasury Bills versus U.S. Dollar
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
will the dollar. To the left of the chart in Figure 6.9, in the period from 1985 through1986, another strong inverse relationship existed between the dollar and Treasury billfutures. Figure 6.10 shows the sharp rally in T-bill prices that began in the spring of1989, which was the beginning of the end for the bull run in the dollar.THE DOLLAR VERSUS THE STOCK MARKET
It stands to reason since both the dollar and the stock market are influenced by interestrate trends (as well as inflation) that there should be a direct link between the dollarand stocks. The relationship between the dollar and the stock market exists but isoften subject to long lead times. A rising dollar will eventually push inflation andinterest rates lower, which is bullish for stocks. A falling dollar will eventually pushstock prices lower because of the rise in inflation and interest rates. However, it is anoversimplification to say that a rising dollar is always bullish for stocks, and a fallingdollar is always bearish for equities.Figure 6.11 compares the dollar to the Dow Industrials from 1985 through thethird quarter of 1989. For the first two years stocks rose sharply as the dollar dropped.From 1988 through the middle of 1989, stocks and the dollar rose together. So whatdoes the chart demonstrate? It shows that sometimes the dollar and stocks move in theopposite direction and sometimes in the same direction. The trick is in understandingthe lead and lag times that usually occur and also the sequence of events that affectthe two markets.Figure 6.11 shows the dollar dropping from 1985 through 1987, during whichtime stocks continued to advance. Stocks didn't actually sell off sharply until thesecond half of 1987, more than two years after the dollar peaked. Going back to thebeginning of the decade, the dollar bottomed in 1980, two years before the 1982bottom in stocks. In 1988 and 1989 the dollar and stocks rose pretty much in tandem. The peak in the dollar in the summer of 1989, however, gave warnings that apotentially bearish scenario might be developing for the stock market.It's not possible to discuss the relationship between the dollar and stocks without mentioning inflation (represented by commodity prices) and interest rates (represented by bonds). The dollar has an impact on the stock market, but only after aripple effect that flows through the other two sectors. In other words, a falling dollarbecomes bearish for stocks only after commodity prices and interest rates start to rise.Until that happens, it is possible to have a falling dollar along with a rising stockmarket (such as the period from 1985 to 1987). A rising dollar becomes bullish forstocks when commodity prices and interest rates start to decline (such as happenedduring 1980 and 1981). In the meantime, it is possible to have a strong dollar and aweak or flat stock market]The peak in the dollar in the middle of 1989 led to a situation in which aweaker dollar and a strong stock market coexisted for the next several months. Thepotentially bearish impact of the weaker dollar would only take effect on stocks ifand when commodity prices and interest rates would start to show signs of trendingupward. The events of 1987 and early 1988 provide an example of how closely thedollar and stocks track each other during times of severe weakness in the equitysector.Figure 6.12 compares the stock market to the dollar in the fall of 1987. Notice howclosely the two markets tracked each other during the period from August to Octoberof that year. As discussed earlier, interest rates had been rising for several months,pulling the dollar higher. Over the summer both the dollar and stocks began to weaken
THE DOLLAR VERSUS THE STOCK MARKET
87
FIGURE 6.11THE U.S. DOLLAR VERSUS THE DOW JONES INDUSTRIAL AVERAGE FROM 1985 TO 1989.WHILE IT'S TRUE THAT A FALLING DOLLAR WILL EVENTUALLY PROVE BEARISH FOR STOCKS,A RISING STOCK MARKET CAN COEXIST WITH A FALLING DOLLAR FOR LONG PERIODS OFTIME (1985 TO 1987). BOTH ROSE DURING 1988 AND 1989.U.S. Stocks versus the Dollar
together. Both rallied briefly in October before collapsing in tandem. The sharpselloff in the dollar during the October collapse is explained by the relationshipbetween stocks, interest rates, and the dollar. While the stock selloff gathered momentum, interest rates began to drop sharply as the Federal Reserve Board added reserves to the system to check the equity decline. A "flight to safety" into T-billsand bonds pushed prices sharply higher in those two markets, which pushed yieldslower.As stock prices fall in such a scenario, the dollar drops primarily as a resultof Federal Reserve easing. The dollar is dropping along with stocks but is reallyfollowing short-term interest rates lower. Not surprisingly, after the financial marketsstabilized in the fourth quarter of 1987, and short-term interest rates were allowedto trend higher once again, the dollar also stabilized and began to rally. Figure 6.13shows the dollar and stocks rallying together through 1988 and most of 1989.
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FIGURE 6.12DURING THE 1987 STOCK MARKET CRASH, STOCKS AND THE DOLLAR BECAME CLOSELYLINKED. AFTER DROPPING TOGETHER DURING AUGUST AND OCTOBER, THEY BOTTOMEDTOGETHER DURING THE FOURTH QUARTER OF THAT YEAR.Stocks versus the Dollar1987
THE DOLLAR VERSUS THE STOCK MARKET
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FIGURE 6.13THE DOLLAR AND EQUITIES ROSE TOGETHER DURING 1988 AND THE FIRST HALF OF 1989.THE "DOUBLE TOP" IN THE DOLLAR DURING THE THIRD QUARTER OF 1989, HOWEVER,WAS A POTENTIALLY BEARISH WARNING FOR EQUITIES.U.S. Stocks versus the Dollar
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
THE SEQUENCE OF THE DOLLAR, INTEREST RATES, AND STOCKS
The general sequence of events at market turns favors reversals in the dollar, bonds,and stocks in that order. The dollar will turn up first (as the result of rising interestrates). In time the rising dollar will push interest rates downward, and the bondmarket will rally. Stocks will turn up after bonds. After a period of falling interest rates(rising bond prices), the dollar will peak. After a while, the falling dollar will pushinterest rates higher, and the bond market will peak. Stocks usually peak after bonds.This scenario generally takes place over several years. The lead times betweenthe peaks and troughs in the three markets can often span several months to as longas two years. An understanding of this sequence explains why a falling dollar cancoexist with a rising bond and stock market for a period of time. However, a fallingdollar indicates that the clock has begun ticking on the bull markets in the other twosectors. Correspondingly, a bullish dollar is telling traders that it's only a matter oftime before bonds and stocks follow along.
GOLD AND THE STOCK MARKET
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FIGURE 6.14COMMODITIES VERSUS EQUITIES FROM 1985 TO 1989. SOMETIMES COMMODITIES ANDSTOCKS WILL RISE AND FALL TOGETHER AND, AT OTHER TIMES, WILL SHOW AN INVERSERELATIONSHIP. IT'S IMPORTANT TO UNDERSTAND THEIR ROTATIONAL SEQUENCE.Stocks versus Commodities
COMMODITIES VERSUS STOCKS
Figure 6.14 compares the CRB Index to the Dow Industrial Average from 1985 throughthe third quarter of 1989. The chart shows that stocks and commodities sometimesmove in opposite directions and sometimes move in tandem. Still, some generalconclusions can be drawn from this chart (and from longer-range studies), whichreveals a rotational rhythm that flows through both markets. A rising CRB Index iseventually bearish for stocks. A falling CRB Index is eventually bullish for stocks. Theinflationary impact of rising commodity prices (and rising interest rates) will combineto push stock prices lower (usually toward the end of an economic expansion). Theimpact of falling commodity prices (and falling interest rates) will eventually begin topush stock prices higher (usually toward the latter part of an economic slowdown).The usual sequence of events between the two markets will look something likethis: A peak in commodity prices will be followed in time by a bottom in stock prices.However, for awhile, commodities and stocks will fall together. Then, stocks will startto trend higher. For a time, stocks will rise and commodities will continue to weaken.Then, commodities will bottom out and start to rally. For a time, commodities andstocks will trend upward together. Stocks will then peak and begin to drop. For awhile,stocks will drop while commodities continue to rally. Then, commodity prices willpeak and begin to drop. This brings us back to where we began.In other words, a top in commodities is followed by a bottom in stocks, which isfollowed by a bottom in commodities, which is followed by a top in stocks, which isfollowed by a top in commodities, which is followed by a bottom in stocks. These, ofcourse, are general tendencies. An exception to this general tendency took place in1987 and 1988. Stocks topped in August of 1987, and commodities topped in July of1988. However, the bottom in stocks in the last quarter of 1987 preceded the final topin commodities during the summer of the following year. This turn of events violatesthe normal sequence. However, it could be argued that although stocks hit bottom inlate 1987, the rally began to accelerate only after commodities started to weaken inthe second half of 1988. It also shows that, while the markets do tend to follow theintermarket sequence described above, these are not hard and fast rules.Another reason why it's so important to recognize the rotational sequence between commodities and stocks is to avoid misunderstanding the inverse relationshipbetween these two sectors. Yes, there is an inverse relationship, but only after relativelylong lead times. For long periods of time, both sectors can trend in the same direction.
GOLD AND THE STOCK MARKET
Usually when the conversation involves the relative merits of investing in commodities (tangible assets) versus stocks (financial assets), the focus turns to the gold market.The gold market plays a key role in the entire intermarket story. Gold is viewed as asafe haven during times of political and financial upheavals. As a result, stock marketinvestors will flee to the gold market, or gold mining shares, when the stock marketis in trouble. Certainly, gold will do especially well relative to stocks during timesof high inflation (the 1970s for example), but will underperform stocks in times ofdeclining inflation (most of the 1980s).Gold plays a crucial role because of its strong inverse link to the dollar, itstendency to lead turns in the general commodity price level, and its role as a safehaven in times of turmoil. The importance of gold as a leading indicator of inflationwill be discussed in more depth at a later time. For now, the focus is on the meritsof gold as an investment relative to equities. Figure 6.15 compares the price of gold to
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THE DOLLAR VERSUS INTEREST RATES AND STOCKS
FIGURE 6.15GOLD VERSUS THE STOCK MARKET FROM 1982 TO 1989. GOLD USUALLY DOES BEST INAN INFLATIONARY ENVIRONMENT AND DURING BEAR MARKETS IN STOCKS. GOLD IS ALEADING INDICATOR OF INFLATION AND A SAFE HAVEN DURING TIMES OF ADVERSITY.STOCK MARKET INVESTORS WILL OFTEN FAVOR GOLD-MINING SHARES DURING PERIODSOF STOCK MARKET WEAKNESS.Gold versus the Stock Market
INTEREST-RATE DIFFERENTIALS
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GOLD-A KEY TO VITAL INTERMARKET LINKSSince the gold market has a strong inverse link to the dollar, the direction of thegold market plays an important role in inflation expectations. A peak in the dollarin 1985 coincided with a major lowpoint in the gold market. The gold market top