NEW YORK (TheStreet) -- Although both SPDR Gold Shares (GLD) and Market Vectors Gold Miners ETF (GDX) have developed strong bottoming formations over the past year, price breakouts to the upside have been put on hold as PowerShares DB US Dollar Index Bullish (UUP) and SPDR S&P 500 (SPY) continue to move higher.
The U.S dollar and gold tend to trade in opposite directions as many money managers consider the precious metal a way to hedge against inflation. The negative correlation has held up recently as dollar strength due to improving U.S. fundamentals has weighed on buying support for the metal.Read More: Friday, July 25: Today in Gold and Silver In July, strong U.S. labor market and manufacturing data proved to analysts that although pockets of weakness remain in the economy, as a whole, improvement is taking shape. Meanwhile, gold is bid higher during times of fear as a way to hedge geopolitical risks. As tension increased in Ukraine and Gaza earlier in the year, gold kept a solid bid underneath it. The odds, however, now favor that escalation of violence in both regions will diminish rather than become significantly greater. This belief has led investors to sell some of their gold and gold mining holdings, while pursuing stronger investments among U.S. equities.
UUP data by YCharts Many believed that second-quarter U.S. earnings would underperform expectations, thus being a catalyst for a decline in equity markets. That has not been the case yet, as moods remain upbeat with close to half the companies in the S&P 500 having already reported. Nearly 68% of S&P 500 companies have posted earnings that topped expectations, according to Thomson Reuters data, above the long-term average of 63%. On the revenue side, 62.1% have beaten analysts' forecasts, compared with the historical average of 61%. Stronger earnings have kept funds in U.S. equities, limiting the gains of precious metals and precious metal miners. Recent weakness in precious metals and miners does not, however, mean that the longer trend will still not be higher. The long-term base in still in place but has simply lacked a catalyst to ignite buying pressure that would lead to a breakout higher. Read More: Amazon Fire Phone Review: That's All Ya Got? The catalyst could come in the form of falling equity markets or heightened geopolitical tension throughout the world. But until such an event comes about, the U.S. dollar and equity markets look like the best place to park your money. At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time. Follow @macroinsights This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV