Gold and Stocks No Longer Are at Odds

Dollar Decline Makes Strange Bedfellows

Both the Comp and Amex Gold Bugs Index are in "solid bull markets" and share "a sentiment backdrop [being] one of disbelief," Schaeffer said. Wall Street remains in the "disbelief stage" regarding gold, he continued, noting the predominance of hold and sell ratings on gold shares at major brokerages. In addition, the entire market cap of the Gold Bugs Index is less than that of tech giants such as Microsoft (MSFT Quote) or Dell (DELL Quote). "We're a far distance from euphoria" regarding gold, he said.

Of course, there have been examples of euphoria and/or wild speculation in some small-cap tech shares (and arguably in gold as well, according to the Commitment of Traders' Report). But "put open interest and short interest on tech remains at extremely high levels," Schaeffer noted in a recent report. Additionally, the common labeling of tech as being in a new bubble or "echo bubble" indicates disbelief in the sector, he argued, noting the Comp would have to rally by an additional 45%-plus just to retrace 50% of its loss from its March 2000 peak to its October 2002 trough.

Schaeffer maintains a bullish stance on the Comp and small-cap tech, especially compared to the big-cap Dow Jones Industrial Average, a position he's advocated since late 2002. He maintains a target of 2200 for the Comp, which would be roughly double its October 2003 low, and an area where there's technical resistance around the 80-month moving average.

Regarding gold, he continues to recommend investors keep 15% to 20% of their assets in gold shares, predicting a move above resistance in the $380-to-$400-per-ounce range would likely be followed by an "extremely sharp and extremely rapid rally."