Macro and Global Liquidity Analysis: Gold, Silver, and Bitcoin - May 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 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 2^nd half of 2024.

 

 

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…

 

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.

 

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

 

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.

 

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 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.

 

Looking at a weekly level, Global Liquidity has broken to new highs above the US$173 trillion level, showing strong signs of recovery.

 

 

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.

 

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.

 

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.

 

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.

 

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.

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!