There is a dense yellow metal that is currently in the midst of a global bull market amid the least amount of fanfare that I can recall. The metal is gold and the bull market is very real and gaining momentum by the day.
Gold is breaking out to all-time highs in multiple global currencies including the euro, the British pound, the Japanese yen, and the Australian dollar etc...
Gold Priced In Australian Dollars (Monthly - 20 Year)
Gold in Aussie dollar terms looks like one of the greatest bull markets of the last twenty years.
Gold Priced In Euros (Monthly - 20 Year)
New all-time high for gold priced in euro terms above 1500 euros per ounce!
Gold Priced In British Pounds (Monthly - 20 Year)
A new all-time high for gold in pound sterling terms!
Gold Priced In Japanese Yen (Monthly - 20 Year)
¥184,000 per ounce!
Got the picture? Gold is experiencing a global rally, and gold in US dollar terms is the only chart that has yet to make a new all-time recently. However, a new high for gold in US dollar terms may not be that far away...
Gold Priced In US Dollars (Monthly - 20 Year)
All of these charts share a similar story of global currencies losing value relative to the only true store of value that has stood the test of time, gold.
The US dollar has recently benefited from its perceived safety and the relative strength of the US economy compared to the eurozone, Japan, UK etc. The US stock market has been the envy of the world since the March 2009 bottom with a more than 400% gain for the S&P 500. However, there are mounting signs that gold could outperform mega-cap US stocks over the coming years.
In his brilliant "Paradigm Shift" blog post, Ray Dalio laid out many of the reasons why he is much less optimistic on future returns from equities and most forms of debt:
"I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets. Said differently, I think that the paradigm that we are in will most likely end when a) real interest rate returns are pushed so low that investors holding the debt won’t want to hold it and will start to move to something they think is better and b) simultaneously, the large need for money to fund liabilities will contribute to the “big squeeze.” At that point, there won’t be enough money to meet the needs for it, so there will have to be some combination of large deficits that are monetized, currency depreciations, and large tax increases, and these circumstances will likely increase the conflicts between the capitalist haves and the socialist have-nots. Most likely, during this time, holders of debt will receive very low or negative nominal and real returns in currencies that are weakening, which will de facto be a wealth tax."
Without delving into Dalio's thesis and debating future market returns, I don't think it's much of a leap to look at the following chart and quickly surmise that i'd rather be long than short:
Gold/S&P 500 Ratio Chart (Monthly - 20 Year)
The gold/S&P ratio peaked in 2011 and proceeded to enter a seven year bear market correction which bottomed in 2018. If gold has indeed resumed its secular bull market (which new highs in pretty every global currency appears to be confirming) then we can expect the gold/S&P ratio to also move higher and eventually move back above 1.0 (one ounce of gold in USD terms worth more than the S&P 500 Index). Even a .6 ratio value would mean new all-time highs for gold in USD terms (at Friday's S&P 500 closing value of 3,337).
There are a lot of things to like in the above chart, but two stand out to me:
- The monthly 14-period Relative Strength is moving above the median line after multiple tests of the 50 level in the last several years - this is characteristic of the early stages of a bull market.
- The gold/S&P 500 ratio retested its initial bull market breakout peak from early 2003 (~.40) and has spent the last 18 months wedging higher - this ratio could be on the verge of embarking upon a much more aggressive upward trajectory.
While gold is up more than 20% in the last year, we haven't heard much about it from the mainstream media. Anecdotally, I don't hear anyone talking about gold aside from a small clique of gold bull die-hards and my usual sources on Twitter and CEO.ca - the people who were all in on cryptocurrencies in January 2018 and cannabis stocks in February 2019 are no where near gold right now.
Welcome to the gold bull market of the roaring 2020s, it's just getting started so why don't you get comfortable and stay a while....
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