Why the XAU/Gold ratio emerges from 13 years of compression

Michael Oliver’s thesis asserts that momentum precedes price and can signal a reversal before it becomes visible on conventional charts. Momentum Structural Analysis (MSA) prioritizes momentum structures, unlike traditional indicators such as RSI and stochastic oscillators.

An MSA oscillator measures the normalized deviation between price and its long-term moving average, using filtering designed to detect structural reversals. The period n is calibrated against half-cycle windows to limit the lag introduced by smoothing. The signal appears when the oscillator’s second derivative changes sign, before price confirmation.

For the 2022–2026 cycle, Oliver considers the 2022 correction, from over 2,000 to 1,600, to be an intermediate correction rather than the end of the bull market, because annual momentum has remained intact. A sustained reversal would require a long-term structural divergence. This signal would make it possible to maintain a long position in gold despite declines of 20–30%, as long as annual momentum remains intact.

Calibration of the XAU/Gold Index and Revaluation Theory

The XAU/Gold index (large gold mining index divided by the ounce price) is the core of Oliver’s position on mining stocks. Historically, before 2008 the rule was 18%–35% with a median of ~25%, while in 2013-2015 the index dropped to ~4%. Over the last 13 years (2013-2026) it moved between 5%–8.5%, with three failed breakout attempts. In October 2026 it reached ~9.1%, marking the first sustainable breakout of the ceiling and a potential structural change. Major companies (Newmont, Wheaton) have returned to historic highs, confirming the revaluation. Modeling of the revaluation potential shows that returning to 18% implies a surplus of +97.8%, while returning to 25% gives +174.7% relative outperformance versus gold. Bank of America estimates that stocks price gold 19% below spot, providing a safety margin. Sprott notes that mining stocks trade at lower earnings multiples than the S&P 500, despite higher profit margins and lower leverage.

Gold/Real Rates Decoupling: A Transitional Regime

The canonical relationship between gold and real interest rates (TIPS) broke down in 2024–2025, driven by massive central bank purchases and geopolitical tensions. Historically, the correlation over 2003–2021 stood at -0.84. This decoupling represents a structural regime shift that validates Oliver’s thesis that the drivers of gold prices are no longer limited to interest rates.

However, a partial return of the negative correlation was observed in early 2026, when Kevin Warsh’s nomination as Fed Chair triggered a sell-off. Conclusion: the gold–real rates correlation is not stable; it is regime-dependent, reinforcing the usefulness of a momentum signal for navigating between regimes.

Institutional Context: De-dollarization and Structural Demand

IMF (COFER) data show a gradual erosion of the dollar’s share of global reserves (56.92% in Q3 2025, compared with approximately 71% in 2000), but this decline is largely attributable to exchange rate effects (euro appreciation) rather than active dollar selling. The real shift is happening elsewhere: central banks purchased more than 1,000 tonnes of gold per year in 2022, 2023, and 2024, a level not seen since 1950. This demand is price-inelastic, creating a structural floor for the metal.