Macro and Global Liquidity Analysis: Gold, Silver, and Bitcoin - May 2024
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Posted 31/05/2024
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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 that were discussed with our expert panel on Tuesday. 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?
We remain in the Mid Cycle phase of the Global Macro Cycle, despite mixed data from the global economy last month. We are still well below the halfway line however, indicating there is plenty of runway left for the upward momentum to continue. We would expect an accelerated move higher in the months ahead as the cycle plays “catch-up” to the additional liquidity and stimulus expected in the 2nd half of 2024.
![Global Macro Cycle Indicator - May 2024 Global Macro Cycle Indicator - May 2024](/Root/image-20240531082538-1.png)
This is consistent with what we are seeing in terms of economic growth in the U.S., as evidenced by the ISM. We dipped back below the 50 line for May…
![U.S. Growth: 1 Month Leading Indicator - May 2024 U.S. Growth: 1 Month Leading Indicator - May 2024](/Root/image-20240531082538-2.png)
and the forward-looking indicator over the next 3 months also showed a pullback to the 50 line. This is not necessarily a bad thing for risk assets however, as the longer we see sideways action, the more room it gives to central banks to ease policies and stimulate further growth ahead.
![U.S. Growth: 3 Month Leading Indicator - May 2024 U.S. Growth: 3 Month Leading Indicator - May 2024](/Root/image-20240531082538-3.png)
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. The leading indicator suggests that the real rate of inflation is sitting around 2%, which is within the Federal Reserve’s stated target range. Rhetoric from the Fed continues to suggest that peak rates have passed, and we can expect cuts ahead, and there is a growing sense that the Fed may be increasingly comfortable with a higher target rate over the longer term.
![U.S. Inflation: Leading Indicator - May 2024 U.S. Inflation: Leading Indicator - May 2024](/Root/image-20240531082538-4.png)
U.S. government debt continues its relentless, and increasingly exponential, march higher with no meaningful attempts to bring it under control.
![U.S. Federal Funds Effective Rate 1995-2024 U.S. Federal Funds Effective Rate 1995-2024](/Root/image-20240531082538-5.png)
Bond yields have been remarkably stable recently; however the risk may return to the debt markets if yields move higher from here. The backdrop of governments attempting to issue more supply onto a market that is not interested is the main challenge. An acceleration of higher of yields is a major warning sign that we are heading into a situation where the Fed or the government will be forced to respond.
![U.S. Federal Funds Effective Rate 2019-2024 U.S. Federal Funds Effective Rate 2019-2024](/Root/image-20240531082538-6.png)
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.
![Global Liquidity and World Financial Asset Prices Global Liquidity and World Financial Asset Prices](/Root/image-20240531082538-7.png)
Global Liquidity is currently recovering from the cycle lows. You can clearly 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 reds starting to dominate as the liquidity picture improves.
![World Central Bank Liquidity: Heat Map, End-April 2024 World Central Bank Liquidity: Heat Map, End-April 2024](/Root/image-20240531082538-8.png)
Looking at a weekly level, Global Liquidity has broken to new highs above the US$173 trillion level, showing strong signs of recovery.
![Weekly Global Liquidity - 26 May 2024 Weekly Global Liquidity - 26 May 2024](/Root/image-20240531082538-9.png)
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 actually grow, over the long term. A combination of Gold, Silver, and Bitcoin keep 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.
![Gold+Crypto, Global Liquidity and U.S. CPI Gold+Crypto, Global Liquidity and U.S. CPI](/Root/image-20240531082538-10.png)
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.
![Global Liquidity Index and Gold - May 2024 Global Liquidity Index and Gold - May 2024](/Root/image-20240531082538-11.png)
It is a similar story with Silver which also had a cycle low in September 2022 and has exploded higher with recent gains.
![Global Liquidity Index and Gold - May 2024 Global Liquidity Index and Gold - May 2024](/Root/image-20240531082538-12.png)
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.
![Global Liquidity Index and GSR - May 2024 Global Liquidity Index and GSR - May 2024](/Root/image-20240531082538-13.png)
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.
![GMI Weekly Global Liquidity Index ($BN) vs Bitcoin - Weekly 2013-2024 GMI Weekly Global Liquidity Index ($BN) vs Bitcoin - Weekly 2013-2024](/Root/image-20240531082538-14.png)
The Bitcoin cycle low was in November 2022, and since then the returns have been unmatched by any other major asset. Recently breaking through all-time highs and maintaining those gains with historically smaller than average drawdowns along the way suggests that the Bitcoin market is looking through the short-term Global Liquidity volatility noise to the much higher levels on the horizon.
![Global Liquidity Index and Bitcoin - May 2024 Global Liquidity Index and Bitcoin - May 2024](/Root/image-20240531082538-15.png)
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 220.1% p.a. as at Tuesday’s recording.
![Current 60-day cycle - Bitcoin/USD Current 60-day cycle - Bitcoin/USD](/Root/image-20240531082538-16.png)
Watch the full presentation with detailed explanations and discussion on our YouTube Channel here: https://youtu.be/jfoGuUBb5jw
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!