Gold stocks have failed to rally amid the market turmoil the last few months, but this could be changing. The relative strength indicator measuring Barrick Gold (ABX) over SPDR S&P 500 (SPY) - Get Report has begun to break higher out of a consolidation pattern, breaching its 200-day moving average for the first time since 2011, seen below.

Many people watch the relative leadership of gold stocks because it has done a nice job of showing when equity markets are weakening. Consider that the last time the indicator traded above its 200-day moving average, the Greek credit crisis was roiling markets.

As equity markets raced higher in the years following the Greek crisis, Barrick Gold lagged the broader S&P 500 index by a wide margin. Enthusiasm for technology and dividend paying equities amid low interest rates left little room for inflows into gold producers. Moreover, when the U.S. dollar began to trend higher against its largest peers, gold took another hit, falling to multi-year lows. Higher interest rates, and a strong U.S. dollar generally lead to weakening gold prices as the precious metal is priced in dollars.



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Currently, however, the global economy is weakening, and Barrick Gold's price action has started to form an inverse head and shoulders bottoming pattern. Equity markets across the globe have also experienced heavy selling pressure in recent days, leading investors to search for safe-haven assets.

The Federal Reserve may be forced to tighten policy at a slower rate in 2016 as the global economy remains fragile, making gold prices more attractive. Ultimately, the SPDR S&P 500 is trading well below its 200-day moving average, while Barrick Gold's relative strength ratio is trading above its 200-day moving average for the first time in many years. Considering the inverse relationship, more selling pressure could be ahead for global equities.


Chart provided by TradingView.com

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.