NEW YORK ( TheStreet) -- The weak inflation data seen on Tuesday was reflective of the overall sentiment surrounding the domestic and global economy.China reported weak GDP on Monday, and gold subsequently tanked. There are many factors behind the gold freefall, but I like to think the lack of inflation to hedge as being a main driver.
The ratio rose in stride with the SPDR S&P 500 (SPY) upturn during late 2012, but recently has broken the trend. Many analysts have cited that the economic speed bump hit towards the end of the first quarter, and this chart is a testament to that. The chart advocates for a turn to defensive portfolio positioning, but more evidence is needed. Courtesy of stockcharts.com A major turn of events Monday was gold's freefall, as referenced earlier in the article. The chart above of SPDR Gold Trust (GLD) over an equal weight DB Commodity Index Tracking Fund (DBC) shows that relative to the commodity sector, gold had been positioning for a major move lower. Inflation fears had long been overdone without consistent growth coming in to back up the claim, and the drop in the ratio, although much more than expected, is evidence that the inflation bears have finally won out. Courtesy of stockcharts.com The last chart is of the DB USD Index Bullish (UUP) over SPDR Gold Trust. This shows the battle between inflation hedge, gold, versus the dollar, that gains strength when inflation pressure subsides. The price action had flirted with highs for much of the past year, but finally broke through with the volatile price movement Monday. Many will attribute the extent of the volatility Monday to program trading and the power it has over markets. But regardless of the magnitude, the direction was justified. With global indicators breaking bearish, it is only a matter of time before equities break down as well. At the time of publication the author had no position in any of the stocks mentioned. Follow @AndrewSachais This article was written by an independent contributor, separate from TheStreet's regular news coverage.