While stocks ended 2012 and started the new year off with a bang, gold has been notably absent from investor euphoria as of late, as risk-taking favors equities over metals in the near-term.

There is no doubt that gold has been a phenomenal performer over the last decade, but it might be time to entertain the idea that the environment might get more challenging for gold as a leader relative to stocks.

First, consider that price behavior in gold indicates it is less of an inflation hedge, and more of a deflation one. Gold has tended to outperform equities when in the midst of a risk-off period, and underperform in environment characterized by increased animal spirits in the past three years.

“ "Life is a constant oscillation between the sharp horns of dilemmas." ” — —H.L. Mencken

Why is this the case? Because in many ways, investors seems to be treating the asset class of stocks as a better inflation hedge in a world overseen by SuperBen and the League of Extraordinary Bankers.

As interest rates have plummeted, corporate debt has become incredibly cheap to issue. If you're the head of a company, you have an embedded incentive to issue cheap debt and buy back company shares, shrinking the supply of shares outstanding to push up your stock price under dwindling investor demand and helping to prop up your earnings per share.

One of the reasons many invest in gold is because supply is set and can not be expanded. Against the backdrop of stock supply, which is shrinking, however, that particular reason for holding gold becomes an even stronger reason to own equities as a result of the share-buyback trend. Because investments must compete for dollars, this could explain why money has preferred stocks to gold under risk-on/reflationary periods.

There is another dilemma though for gold which is important to consider. Studies show that the precious metal over time tends to exhibit strong momentum in negative real-rate environments. That happens when inflation is higher than nominal interest rates. The problem? Rates may be on the verge of rising, as the yield curve steepens, money re-allocates out of bonds, and as Treasurys underperform. That would imply that we may be in the very early stages of a return back to positive real rates.

The Fed's recent minutes indicating a potential end to bond buying by year-end suggests that this may be what happens next. For gold, that becomes a more difficult environment to lead in.

Take a look below at the price ratio of the SPDR Gold Trust ETF GLD, +0.32% relative to the S&P 500 SPY, +0.20% . As a reminder, a rising price ratio means the numerator/GLD is outperforming (up more/down less) the denominator/SPY. For a larger chart, visit https://twitter.com/pensionpartners/status/288291576709533696/photo/1.

Note that spikes in the ratio coincide with risk-off/deflationary scares, such as occurred during the May Flash Crash of 2010, Summer Crash of 2011 and corrective period of October 2012.

The ratio since mid-November was on a solid downtrend throughout the fiscal-cliff countdown, which I maintained all along inter-market trends were not concerned with. Note that the ratio has now broken relative support, and that the weakness could persist.

I suspect that the ratio will ultimately fall to the May 2010 level before a powerful bounce comes in terms of outperformance relative to the S&P 500, as money pays more attention to stocks which are under-invested and comparatively unloved.

Our ATAC models used for managing our mutual fund and separate accounts remain positive on equities, and unless sudden deterioration occurs, gold may not be the best way to accelerate time and capital ... at least not yet. The dilemma then is to properly time gold in an environment where tailwinds suddenly become headwinds.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.