Gold Crossing Event Horizon For 4th Time In 100 Years - Impact on Stocks

Looking below at the gold vs. S&P500 bi-monthly MACD indicator, we notice only four times in the past 100 years when it crossed to the upside after a prolonged period below zero—each marking a significant event in global financial markets.

Source: @Northstarcharts

Each of these four events led to stock markets going sideways, in a range for about a decade, while precious metals significantly outperformed.

On the chart below, we can note that this phase is marked by the Stochastic RSI (a technical indicator used to identify overbought and oversold conditions) resetting from overbought to oversold on the 12-month chart.

In all of these phases, we can see gold (yellow) outperforming stocks (blue) significantly.

These are two powerful technical indicators flashing red, are telling investors to move from stocks, into precious metals. Both indicators also line up perfectly from a timing perspective - with the ongoing 18.6-year land cycle and the 80-year socio-economic cycle expectations, which are congruent in point to such a phase coming up over this decade.

While technical analysis and cycle theory tell a similar story - economic indicators further reinforce this expectation with systemic cracks getting concerningly large. One significant example of this is the Commercial Mortgage-Backed Securities delinquency rate – currently at the highest level in recorded history.

The graph above shows the current Commercial Mortgage-Backed Security delinquency rate is higher than that of the Global Financial Crisis - which was famously caused by the Mortgage-Backed Security (residential) delinquency crisis. 

While global liquidity continues rising, amid these concerning indicators, characteristic of this final phase of the 18.6-year cycle show markets could continue rising together in the short to medium term. However, looking at the bigger picture - investors actively seek assets that can not only benefit from the current rising liquidity – but also provide shelter from the storm in the turbulence that follows - as both the 18.6 and 80-year cycles end simultaneously.

For multiple 18.6-year and 80-year cycle transitions - this need has been fulfilled with gold and silver - as vehicles to profitably navigate such tricky decades in financial markets. The need for such a vehicle applies to retail investors, institutional investors and central banks alike - and is clearly reflected in the recent price action by gold.

While the last three times the gold vs S&P500 bi-monthly MACD indicator crossed to the upside after a prolonged period below zero marked the end of 18.6-year cycles, this 4th one also marks the transition of the much more significant, 80-year cycle. And while gold appears to be setting up for the most significant revaluation of the last century, we see the price today already front running this upcoming turbulent phase in financial markets. While many investors are left scratching their heads trying to explain gold's incredible outperformance, zooming out we can see that this is only a foreshadow of what is to come.

So far, it appears that gold’s impressive performance is largely driven by central banks stockpiling in preparation for this global financial turbulence which has accelerated to the tune of 5x since the Russia-Ukraine conflict resulted in the weaponisation of the US dollar, effectively dethroning it as a reliable option for a global safe haven asset.

Another important trend (with no end in sight) that is driving up the price of gold – is the strategy of major governments to stockpile gold, while simultaneously printing unlimited amounts of their currency. This results in the devaluation of their government debt in real terms, and enables governments to continue spending and servicing their debt - without increasing taxes - while hard-working everyday citizens pay the price for this government debt devaluation strategy in the form of inflation.

The solution? If you can’t beat them, join them. Stockpiling gold as an individual allows one to jump on the bandwagon with major central banks, benefiting from this currency devaluation, rather than paying the price for it.

Watch the Ainslie Insights video discussion of this article here: https://www.youtube.com/watch?v=HdPsjyFVDtI