August 22, 2024: The run in gold

Gold prices have soared recently to a new high (Chart 1).
Are investors suddenly turning scared about the stock market and looking for the ultimate safe haven asset?
Many other safe-haven securities have also jumped up in recent weeks: the Utilities sector (up 17.40%), Real Estate (up 14.33%), Health Care (up 11.60%), and Consumer Staples (up 11.45%).
These have all outperformed the S&P 500, which has advanced by only 9.72% (Chart 2).
So is this collective move toward this key group of securities suggesting a deep concern for the aging bull market?

The answer is no.

Investors have several times during the current bull market jumped toward that basket of securities when more severe periods of concern have developed.

The last three times were in mid-2011, early 2016 and mid-2019.

All these times were preceded by or during corrections in the 15% to 20% range.

Even the elevator drop in mid-2020 did not send investors running for safety.

Market tops are associated with, not runs to safe haven sectors, but peaks in materials and energy sectors. Examining Chart 2 shows these two key industry groups now have the lowest performance, not the highest.

Chart 3 does provide some insight into sector rotation and market movements. A prolonged dominance of the safe haven industries (Utilities, Real Estate, Health Care and Consumer Staples) is likely more telling about eroding investor confidence than predicting a bull market crest.

Market tops are associated with over enthusiasm rather than a collective run to safety.

Bottom line: The breakout in gold prices to a new high, has a number of market commentators and investors suggesting that this is a 'sure sign' of a near-term bull market top.

Nothing could be further from the truth.

Interest in buying gold comes at times of uncertainty, potential concerns around inflation and the strength of the US dollar.

A run in gold prices is never is an indicator of a market peak