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INFLATION-INDEXED BONDS AND GOLD SURGE

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The positive relationship between the Inflation Indexed Bond ETF (TIP) and the Gold SPDR (GLD) went through a rough patch in December-January, but got back on track the last two month. First, note that both remain in clear uptrends. The chart below shows TIP (red) and GLD (black) surging to new 52-week highs in October-November. Both then underwent corrections the next few months. GLD traced out a flat correction and bottomed in late January. TIP underwent a deep correction with a dip below its December low in mid February. Both resumed their positive relationship with a surge over the last two months. GLD hit a new all time high. TIP is close to breaking above its October-November highs.

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Strength in both suggests the presence of inflationary pressures in the market. GLD is viewed as a hedge against inflation. Even though bonds in general are not amenable to inflation, TIP provides a bond alternative that is hedged against inflation. The indicator window shows TIP (red) along with the 20+ year Bond ETF (TLT). Both put in lows in mid February, but TIP is already challenging its high and TLT remains well below its high. The inflation-indexed TIP is clearly outperforming non-hedged TLT.

Arthur Hill
About the author: , CMT, is a Senior Technical Analyst at StockCharts.com. He has written articles for numerous financial publications including Barrons and Stocks & Commodities magazine. Focusing predominantly on US equities and ETFs, his systematic approach of identifying trend, finding signals within the trend, and setting key price levels has made him an esteemed technician. In addition to his CMT designation, Arthur holds an MBA from the Cass Business School at City University in London. Learn More
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