Gold’s severe correction and weak performance in relative terms has led many to ask if the bull market is over. 

While Gold is correcting the move since 2016 or 2018, the better question is, has the bull market even started?

In recent years, I’ve written about how important it is for Gold to outperform the S&P 500. Gold can’t be in a real bull market unless it’s outperforming the stock market. 

Gold had been outperforming the stock market but only briefly.

As you can see below, the real big move in Gold might begin around when the stock market and its valuation peak. 

Recent years have been similar to the mid to late 1960s. Precious metals made huge moves off the bottom (in nominal terms), but Gold and hard assets didn’t accelerate relative to stocks until inflation broke higher in 1969.

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Gold vs. S&P 500 & CAPE (10-Year PE Ratio)

Given where the Gold to S&P 500 ratio and the CAPE is (near an all-time high and almost twice as high as in 2011), we know the real move in Gold is still ahead of us.

(As you can see, major peaks in the stock market & CAPE lead to major moves higher in the Gold to S&P 500 ratio).

At present, Gold has been correcting its big move (along with gold stocks) but has been weakening in real terms. 

That reflects that current fundamentals are not quite bullish for Gold. The market anticipated higher real rates and a dollar rally and anticipated that inflation will remain under control, at least for most of this year.

Nevertheless, the setup for huge gains over the next few years remains in place.

Take a look at the important sector ratios in the chart below.

These ratios are in position for huge upside moves. Breakouts would signal capital moving from stocks and into Gold, from stocks and into gold stocks, while gold stocks dramatically outperform Gold.

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GDX vs. Gold, GDX vs. S&P 500, Gold vs. S&P 500

Gold itself is correcting and building the handle on a very bullish cup and handle pattern, which projects to an upside target of $3000/oz. The breakouts in those ratios should coincide with Gold breaking past $2,100/oz. 

At present, the catalyst for that move is unclear.

It could be accelerating inflation, a move to yield curve control, or a peak in the stock market, which has become negatively correlated with precious metals. 

While none of these things appear imminent and could be a few quarters away, note that the market will move in advance before the catalyst becomes obvious.

Because nothing appears to be imminent, we can buy quality and high-quality juniors that have corrected 30% to 40% and more. 

As an investor, I’m positioning myself in the highest quality companies with the most upside potential. I’m looking for and investing in companies that have a defined value, fundamental quality, and have the potential to be 5, 7, and 10 baggers when the real bull market begins, and this sector makes its next impulsive advance.