Pause, not Reversal, in Flight-to-Safety Trade

What is fascinating about the enclosed daily charts of spot gold and nearby 10-year T-note futures is that both major trends remain very much intact and dominant despite the recent weakness. In fact, the weakness has NOT violated any meaningful prior pivot low -- in gold at the May 21 low of 1165.74 and in the T-notes at the June 21 low of 119-24.

Purely from a technical perspective, the 6.5% decline in gold and the 1.5% decline in T-notes appear to be "normal, minor" corrections within the larger uptrends. To listen to bond and stock market pundits claim that a mass exodus out of bonds and, to a lesser extent, out of gold will now drive equity prices much higher seems to belie what these charts are telling us -- that the flight to safety trade is undergoing a pause that refreshes, rather than a total reversal...at least for now.

For that reason we are long the SPDR Gold Shares (NYSE: GLD) and iShares Barclays 20+ Year Treas Bond (NYSE: TLT) in our model portfolio.