Conflicting view to be bearish for gold and the stock market at the same time?

Following my blog yesterday, I got a good question from a few friends asking if it is a conflict of view to talk down about gold and the stock market at the same time. Since there are a few aspects to explain, it's worth another blog to share my thoughts.

First of all, it is a general view that gold is a safe haven asset and as such it should go up when the market goes down. It is logical and reasonable to think so. But let's use the chart to analyze whether this is true. See the 5-year chart below to see the correlation between the stock market (SPY in red) vs gold (GLD in blue) from 2015 to 2019. Do you see a clear and strong inverse correlation, i.e. one must goes down when the other goes up? I don't see that. 

As a matter of fact, gold has been largely in a side way move while the market has been red hot in an uptrend. By the way, while the market is clearly outperforming gold in a wide margin in the past 5 years, in the past 15 years from early 2000s, gold has greatly outperformed S&P actually by a factor of about 200% points. Moving forward, gold will continue to do much better than the stock market in the long run I believe. This will be another topic in the future. 

Now, if you look more carefully about the chart, you may notice that in 2015, both good and stocks were in a downtrend and in 2017, both were going up together. So clearly gold and the stock market can go in the same direction from time to time and it is not true to expect that gold must go up when stocks are going down. Having said that, gold as a safe haven asset, it does have some risk aversion effect but usually only in a very short time period. More specifically, when there is a widespread sudden panic in the market, typically we may see a fast jump of the gold price. But this kind of effect tends to be short lived and then gold will go where it needs to go regardless of the market, as gold has its own mind and life for sure.

Back to the question for my last blog about the red hot market sentiment which may likely lead to a sharp market correction vs record high of bearish sentiment by the smart money on gold, suggesting a downward trend for gold in the near future. As a matter of fact, the timeframe for the two is quite different actually. For the market correction, if indeed triggered, it will likely be in the next few weeks probably within a month time. But for the gold weak trend, it may take a few months to materialize as the smart money bet is not a good time indicator but rather a general directional bet. In other words, we may still see a temporary strengthening of gold if a sudden panic hits the market. But even if that happens, the smart money bets that the stronger gold is likely not sustainable in the near future and it will come down again first before going much higher again.