Image Source: Philip Brewer, Flickr

The FTSE All World Ex-US index (VEU) is testing multi-year resistance in both dollar and gold terms. (See Chart 1)  Dollar-based investors are obviously interested in dollar thresholds, but why monitor relative strength in gold terms?  Because gold provides an alternative base “currency” that measures confidence in the institutions of money and credit.  A market making higher highs versus gold is exhibiting organic strength independent of local-currency devaluation or unsound credit expansion

An example of a bull market powered by unhealthy credit expansion was seen in U.S. equities from 2003-2007.  A rising market in dollar terms was not corroborated in gold terms, raising suspicion as to the quality of the advance. 
In May 2013, the U.S. market broke out in both dollar and gold terms, suggesting a durable, high-grade bull market. (See Chart 2)  Two years on, a comparable set-up in non-U.S. equities is worth noting.  We further note that VEU’s majorsub-indices – Developed Europe (VGK), Developed Pacific (VPL) and Emerging Markets (VWO) – all have a similar look and feel.  The rest of the world, in other words, is uniformly “on the cusp.”Charts_VEU_SPY_GLD