Crises don't come when everybody expects them to. I have said this over and over again, for the last year I've been in this platform. I don't take it back.
Finding out the kind of crisis that will come, the time and the severity, is hard. Trading, investing, living, is hard...
Some have called me schizophrenic. This is funny. When you say what they want to hear, you are a genius. When science presents something we aren't used to, we take it as impossible.
In my last few ideas, I received the "kindest" comments of all.
How is it possible... when a chart shows weakness on equities and strength on commodities, it is loved. How is it possible... when a chart shows weakness on gold and strength on dollar, it is hated.
In my bio I warned you. You will have to deal with my presence for much, much longer. So here I am again. In front of your face.
-- Analysis --
Price discounts everything. The magic of the fractal nature of the stock market satisfies me every time. Chart patterns like flags, wedges, channels, triangles, rectangles, rounded tops, appear everywhere. Some of them have greater strength than others. But each one of them has it's meaning and importance.
To get the elephant out of the room, let's look at the historical Gold chart. Do note that this chart measures: How much one ounce of Gold is worth in dollars? In a sense, how precious is a piece of colorful paper compared to a piece of yellow metal?
After decades of QE, Gold has trapped itself inside a MASSIVE wedge, that engulfs it's entire lifespan (inside stock market). What is the outcome of such a trap? Usually down. Fractals at their best!!!
If one believes in the Dollar Milkshake, they must not believe that Gold/USD will explode. And with Bull-Flagging dynamics in the scarcity of Dollar, what will the outcome be?
-- Thought Experiment --
IF a food crisis comes, and you have invested in gold, what would you do?
- Find a food market that accepts gold, and purchase food with gold. - Find a gold market and sell gold for dollars, and purchase food everywhere with dollars.
Even if you buy stuff with gold coins, the receiver of the coin will go out and exchange it for dollars to pay out their business responsibilities. In both scenarios, gold is taken out of the picture, exchanged for dollars. Either we like it or not, by default we give more value to money because we use it as money. We don't use gold as money.
-- Conclusion --
There are two ways price increases. Scarcity and demand. Gold is scarce but who demands it and for what? Dollar is plentiful and everyone uses it. And now, it gets less and less plentiful.
Tread lightly, for this is hallowed ground. -Father Grigori
-- Extra Charts -- Commodities like oil could very well overperform equities. I don't advice for or against any investment. I am not an investor. Trade at your own risk.
If one believes in the Dollar Milkshake, then they should invest either in dollars, or in dollar-denominated investments. Question is: What could these investments be, and how will they perform? For more information, I have linked below my two hated ideas.
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The internet is filled with guidance to buy gold to evade the coming crisis.
How are they sure that there is a crisis coming?
How are they sure that the dollar will lose it's value?
Commonly, "facts" like "gold increased 10x in the 70s" are presented. The basis of trading is: "future performance doesn't depend on past performance"
This platform should never be a place to deceive. I post these charts to spark conversation. I ask many times to prove and disprove my charts. This is the right thing to do, to challenge what is considered truth.
Final chart: If currency is at a 5000 year low, then Gold (the opposite of currency according to gold-bulls) is at a 5000 year high.
Ask yourself: Is today's currency price statistically high or low? Is today's gold price statistically high or low?
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I always lie about "final chart". No matter what I do, I find another interesting chart to talk about.
A while ago, I posted about the following chart: I never could understand quite well what this chart means.
In the last few decades (1981 - 2021), a rare coupling occurred. The usual investment strategy (bonds + equities) worked impeccably. And the growth of this pair was exponential. Bull Flagging against Commodities themselves.
(We calculate the net-sum of an investment by multiplying equities with bonds. That way we can plot the sum of the average investment.)
Now, this doesn't work. In fact, a significant trendline was violated just last year.
This means that: A classical investment strategy of bonds + equities cannot work anymore. Instead, alternative investments like commodities take it's place.
I told what I had to tell. The rest is up to you.
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An analysis of such a chart could be as follows:
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If Gold is trapped in a Mandelbrot maze, what could the following chart mean for classical investments? Chart broke down of it's trend.
The same goes for an investment in Gold + Commodities
Curiously, the Equity Elephant is bigger and less shiny than the Golden one.
I've been asked about my opinion on the standard Gold chart. There is significant, long-term bearish divergence. This cannot be ignored.
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Gold analysis is very hard and prone to mistakes. In my idea above, I attempted to find its true purchasing cost. In this chart, I calculated the total cost of gold, compared to the total amount of money paid out in bonds. A shape resembling a bull-flag is printed on the chart. Regression analysis however proves that current price of gold is overextended to sustain considerable growth.
Disclaimer: The "wave analysis" using KST is a methodology I invented and I am only now beginning to get the grasp of it. It is a patented way to analyze charts, based on the "cumulative RSI" instead of "standard RSI". This way of chart analysis helps me understand long-term reversal points. Gold can indeed make new all-time highs. Investing however is much more than seeking higher highs. Investing and trading needs strategy. There is no point winning a fight and losing the war.
An extra thought: In many Gold-Bull charts they attempt to construct counterarguments against Bitcoin, Equities etc, they debunk them with words like "don't fear of missing out on Bitcoin - Don't FOMO Bitcoin". And instead, it is common for them to create a "FOMO Gold" mentality.
Strategy needs no fear/FOMO. Strategy and war needs bold, cold-blooded actions.
Gold will indeed play it's role in society. But it seems that with CBDC around the corner, central banks will want to incentivize consumers into buying them. So strengthening fiat currency at all costs will be vital for the survival of CBDC. Contrary, the sword enemy of CBDC right now appears to be Bitcoin, the black money of the digital world. Bitcoin looks fated to increase against gold, again...
It is easy to carry two pockets, one with Digital Dollar, and one with Digital Cash (Bitcoin). It is not that easy to carry gold coins though...
Bitcoin may be fake, it may be matter-less. But value exists on the stuff we give value to. Consider, how much valuable we believe internet and social media to be, even though they exist in electrical circuits. For good or for bad, we consider our phones and computers useful and valuable, not material goods.
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Trend analysis and long-term peaks can be tricky to pinpoint. Peaks and Troughs must confirm by many timeframes.
In the 4M chart of the DJI/PPIACO calculation, the KST-based MACD has called the peak. Historically, the 4M chart is an early-teller of peaks.
The 6M chart shows that we are in the late stages of an uptrend.
These charts suggest that the Equity/Commodity ratio may increase slightly in the months to come.
The ribbons must confirm one another...
Finally, when a trend is violated, we must zoom out and manage our expectations.
With the same fashion, DJI/SILVER prints a similar picture.
The things we expect, may take years to play out...
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Another elephant in the room...
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I am waiting for a very specific signal from the SPX/GOLD chart: I want to see a discrepancy between price/kst support. Price apparently supported from ribbon, with KST under resistance. This is my call for a macro shift of balance.
There is a fundamental difference with 1960s. Back then, the money supply began increasing, abandoning the Gold Standard. Markets priced-in the effect of the GS abandonment. Gold exploded pricing-in a future of ample money supply and scarce gold. Now, in a period of progressively scarcer money supply, investors might seek investments that pay out money, like Bonds (yield payments) and Stocks (dividend payments)
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Up or Down? Place your bets!!!
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For the last 20 years, Gold and SPX have been moving up in parallel. This is not normal...
Gold is too high for SPX to be as high as it is. Negative correlation must return. Only one must remain alive...
Long live SPX!
SPX is too high for yields to be as low as they are. A rapid increase in yield rates will bring support to current prices. The FED is not trapped, it never is. In an economy, someone wins and someone loses. Yield rates must grow!
There is no real trap. These are just invisible handcuffs for our mind. - Charles Patoshik, Prison Break
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2015-2023 horizontal movement
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The bitten apple in the room. More info in the idea linked below:
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Gold on Franks
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The production cost will get too high for Gold to grow further. How high can gold price get for demand to sustain? Not high enough.
Just want to say I really enjoyed this post and your DD! Great work OP. You are a gem and your post made me consider alternative views. Thank you!
I do want to give you one point to consider however. Since the Brentwood Act all countries trade, hold, and purchase US Dollars and securities. This power dynamic however is shifting. With the rapid growth of BRICs nations and the conference in August to potentially announce a BRICs currency backed by commodities, we may potentially revert to a commodity backed global currency once again. This wouldn't be reflected in any chart as since the inception of tracking commodities began during the Brentwood Act. We see this evidence in other charts however, such as the amount of commodities including Gold and Silver that BRICs nations have been buying RAPIDLY for the past decade. We also saw this in the 1970s with the spike in Gold as people realized that is the true source of wealth after the convertibility to gold was halted.
My conclusion is simple. Unlimited printing, spending, and leverage is ending. The credit/debt based system from Nixon taking us off gold standard is ending. The petro-dollar system is failing as Saudi Arabia has began selling oil in other currencies. Saudi Arabia was only supposed to trade in US dollars, giving demand for all other trades since these countries held USD anyhow. This is a long painful transition but can be expedited with a BRICs commodity back currency introduction. We may see a mad dash out of USD as we continue to inflate the currency and the safe haven backing of gold or petro is no longer present. History rhymes, the Roman Empire engaged in debasement, inflation, and unlimited printing. It led to their demise. They tried to control it with a Book of Edicts, which held goods at a certain price and if caught selling above resulted in prison or death. Nixon engaged in the same behavior for his "90 days" without the retribution. I believe this current environment cannot simply be deduced through the past 100 years of charts, especially after 1970. The world has never seen this level of debt and when you take off the blinders of our small glimpse of 21st century economics we see the big picture. Historic growth the world has never seen leads to historic crash the world has never seen. Currencies throughout history are ALWAYS held in check. The same is happening now. God bless, tread lightly.
wbburgin
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@KevLev I agree mostly, but the economic conditions of today’s world are much more siloed than they were before the 20th century. The cracks exist, but only in specific sectors and are unlikely to spread to a worldwide contagion because BRICs nations are much less united than they may appear. The simple answer is that the money in today’s world is no longer concentrated in the hands of one region or corporation or empire, and so cannot easily rise or fall in the same ways it has in the past. There is no Dutch East India Company, no expanding Roman Empire, no King that can bleed the treasuries dry. We live in a multilayered, multipolar financial world now, where cooperation - between BRICS and the rest of the world, and within BRICS themselves - is necessary, but where everybody has their own interests, but limited control. It is a push and pull rather than a shove and take in today’s society, which makes me somewhat optimistic.
ersan123
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Apart from the fact
ReallyMe
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This chart is a prime example of how many people have no idea or don't even bother to question what the chart is supposed to represent. The unit on the x-axis is time, what is the unit on the y-axis? The author has constructed DXY*GOLD/100, but what sense does that make, what is the value DXY*GOLD/100 supposed to express, has anyone ever asked themselves that? The price of GOLD is given in USD per ounce, that is clear. The DXY, in turn, shows the relative value of the US Dollar against a basket of major world currencies. When the DXY index rises, it means that the US Dollar is gaining value against the basket - and vice versa. So what does the artificial unit DXY*GOLD/100 mean? The Gold price is weighted against a basket of selected world currencies and not against the US dollar. Divided by 100 for normalisation, granted.
Is there anything fundamentally different now about debunking a supposed elephant?
Not at all. If you do not live in the US but in an "imaginary average country" with the artificial basket of currencies, that would be your price for an ounce of gold averaged in an imaginary average world currency over 6 other currencies (Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, Swiss Franc) that do not exist in reality (divided by 100) . That's all.
So what is the great fundamental insight from this?
@ReallyMe @FaisalAkragnn @FaisalAkram009 n n n n n n nn n n n n nnn n n n n n n n n n nn n n n n n n m009
ReallyMe
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@ReallyMe, I also think that for the unit to be correct, the formula must be 100*GOLD/DXY and not the way the author of the idea did it. Because: GOLD's unit is USD/ounce DXY's unit is USD/basket of 6 world currencies If we use the formula of the idea, the numerator will be USD squared, which is nonsense. For it to make sense, it must be the inverse of DXY, i.e. 100*GOLD/DXY. So much for the Golden Elephants with USD squared. ;-)
ChartMeNot
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@ReallyMe, let's figure this out right now. Let's say for the sake of argument that the dollar becomes twice as strong against world currencies, and this causes gold to lose half its value, due to the well known inverse relationship. So, you'd expect the value of gold in this equation to remain the same, and when you multiply DXY*gold that's what you get.
USD/ounce would be approximately 0.0005 USD/ounce. @akikostas has this equation correct.
ChartMeNot
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@ReallyMe, correction/clarification on that previous comment.
The gold price has USD as the "quote currency" whereas the DXY has "basket of currencies" as the quote currency (i.e. how many "world currencies" does it take to buy one dollar?
So that's where your error lies, it's the DXY price. USD cancels out by multiplying.
Conversely if you wanted the price of gold in euros, you would divide, as both are quoted in USD. i.e., XAUUSD/EURUSD. Compare to XAUEUR and see how it looks.
ReallyMe
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@ChartMeNot, If the unit of DXY is "basket of 6 world currencies/USD" and not "USD/basket of 6 world currencies" as I assumed, you are correct. Sounds logical.
I do want to give you one point to consider however. Since the Brentwood Act all countries trade, hold, and purchase US Dollars and securities. This power dynamic however is shifting. With the rapid growth of BRICs nations and the conference in August to potentially announce a BRICs currency backed by commodities, we may potentially revert to a commodity backed global currency once again. This wouldn't be reflected in any chart as since the inception of tracking commodities began during the Brentwood Act. We see this evidence in other charts however, such as the amount of commodities including Gold and Silver that BRICs nations have been buying RAPIDLY for the past decade. We also saw this in the 1970s with the spike in Gold as people realized that is the true source of wealth after the convertibility to gold was halted.
My conclusion is simple. Unlimited printing, spending, and leverage is ending. The credit/debt based system from Nixon taking us off gold standard is ending. The petro-dollar system is failing as Saudi Arabia has began selling oil in other currencies. Saudi Arabia was only supposed to trade in US dollars, giving demand for all other trades since these countries held USD anyhow. This is a long painful transition but can be expedited with a BRICs commodity back currency introduction. We may see a mad dash out of USD as we continue to inflate the currency and the safe haven backing of gold or petro is no longer present. History rhymes, the Roman Empire engaged in debasement, inflation, and unlimited printing. It led to their demise. They tried to control it with a Book of Edicts, which held goods at a certain price and if caught selling above resulted in prison or death. Nixon engaged in the same behavior for his "90 days" without the retribution. I believe this current environment cannot simply be deduced through the past 100 years of charts, especially after 1970. The world has never seen this level of debt and when you take off the blinders of our small glimpse of 21st century economics we see the big picture. Historic growth the world has never seen leads to historic crash the world has never seen. Currencies throughout history are ALWAYS held in check. The same is happening now. God bless, tread lightly.