Macro and Global Liquidity Analysis: Gold, Silver, and Bitcoin - August 2024

Today the Ainslie Research team brings you the latest monthly update on where we are in the Global Macro Cycle, driven by the Global Liquidity Cycle, and the implications for Gold, Silver, and Bitcoin. This summary highlights the key charts discussed with our expert panel on Monday. We encourage you to watch the recorded video of the presentation in full for the detailed explanations.

 

Where are we currently in the Global Macro Cycle?

This month we finally witnessed the significant jump higher we had been waiting for with the latest green dot, as the Mid Cycle phase continues to unfold. While we remain below the halfway line, there is still plenty of runway for upward momentum in the months ahead. The cycle is starting to respond to the additional liquidity and stimulus we were expecting in the 2^nd half of 2024.

Where are we currently in the Global Liquidity Cycle?

Global Liquidity leads the movement of World financial assets, so this is the indicator we look most closely at to determine where the opportunities are to take advantage of. It is currently recovering from the cycle lows.

You can see the shift from the red patch where liquidity was being drained on average from global markets in 2022 and 2023 to greens and lighter neutral yellows starting to dominate as the liquidity picture improves.

Do U.S. Growth and Inflation support where we think we are in the Global Macro Cycle?

In terms of economic growth in the U.S., as evidenced by the ISM data, we remain below the 50 line indicating contraction for August with manufacturing data, but services experienced a recovery above the 50 line…

The forward-looking indicator over the next 3 months indicates we can expect to see overall growth returning to the expansion territory ahead.

In terms of U.S. inflation, our leading indicator shows that the lagging government-reported rate continues to remain higher than the real-time data, so there is no strong upward pressure on the rate expected over the next few months and it should continue to lower. The leading indicator suggests that the real rate of inflation has broken significantly below the much-watched 2% level, which is the Federal Reserve’s stated target.

Does the behaviour of U.S. Government Debt, Yields and the Dollar support where we think we are in the Global Macro Cycle?

U.S. government debt continues its relentless, increasingly exponential, march higher with no meaningful attempts to bring it under control.

Bond yields have started to break meaningfully lower, in anticipation of the upcoming Federal Reserve rate cuts. We continue to be concerned about the longer-term potential for an acceleration of yields higher in a significant “tantrum” move as a major warning sign that we are heading into a situation where the Fed or the government will be forced to respond as issuance picks up later in the year, or into 2025.

The U.S. Dollar has also started to break lower, out of its previously tight range. This move is likely to provide further support to markets going forward, all else remaining equal.

Looking more closely at Weekly Global Liquidity, does it support our expectations for the direction of the next move in the Global Liquidity Cycle?

At a weekly level, Global Liquidity shows how strong the recent growth has been over the past few months.

This is largely on the back of very recent moves by China to start increasing its liquidity measures. China is the 2^nd largest contributor to Global Liquidity, and relative to the rest of the world they have been the main country holding the broader index down. Their moves may also align with broader central government moves akin to the Plaza Accord of 1985 with a coordinated effort to bring the U.S. Dollar lower (causing the recent turbulence in the Japanese Yen). At this stage we are just speculating, with no official confirmation of any such current move (but it would explain some recent market reactions!)

Macro Assets for Macro Cycles

Understanding Consumer Price Inflation (CPI) is far less important than Asset Price Inflation in ensuring wealth isn’t eroded and can grow, over the long term. A combination of Gold, Silver, and Bitcoin keeps up with the growth in Global Liquidity over time, and the corresponding debasement of fiat currencies. As such we look to trade into each at the appropriate times to take optimum advantage of the cycles. When correctly timing and structuring the rotation, it is possible to significantly outperform ongoing monetary debasement.

Bitcoin is the most directly correlated asset to Global Liquidity. Trading Bitcoin can be thought of as trading the Global Liquidity Cycle, but with an adoption curve that leads to significantly higher highs and lows each cycle.

At the weekly level, Bitcoin has yet to respond to the most recent jump higher in Global Liquidity, creating the opportunity for an imminent catch-up move.

Zooming out, and looking at Bitcoin on a log scale, the picture becomes clearer that the rate of change for Global Liquidity is still increasing, in a positive direction, which should continue to support the Bitcoin price for longer in this current cycle.

The Bitcoin cycle low was in November 2022, and since then the returns have been unmatched by any other major asset. Recent short-term sideways price action is expected to resolve to the upside as Global Liquidity conditions continue to improve.

The Gold cycle low was in September 2022 and the price has been rising consistently with an improving Global Liquidity picture ever since. The recent continued strength and new all-time highs have been especially bullish, pushing even higher on the back of the recent geopolitical uncertainty and front-running the expected liquidity to come.

It is a similar story with Silver which also had a cycle low in September 2022 and has exploded higher with recent gains.

It remains prudent to keep an eye on the Gold Silver Ratio (GSR), as when the ratio falls it can happen very suddenly, as we have had a glimpse of recently with Silver.

A Simple Trading Plan to take advantage of the cycles

Watch the video presentation to see full details of the specific Trading Plan we provide, that you can follow, which has returned 168.5% p.a. as of Monday’s recording.

Watch the full presentation with detailed explanations and discussion on our YouTube Channel here:

 

 

Until next month when we return to reassess and identify what has changed, good luck in the market!

 

Chris Tipper
Chief Economist and Strategist
The Ainslie Group

x.com/TipperAnalytics

Note: The monthly video presentation is recorded live with our expert panel. Our objective is to make the updates as useful and specific to what you want to understand as possible, so as always feel free to reach out with any questions or feedback that we can incorporate into next month’s video to make it something that provides you with the highest possible value for your time!