Every 15 years, there seems to be an alternating shift either into gold, or away from gold. It's amazing that just charting the simple average of Gold vs S&P with no fancy modifications, we get such a clear picture. Of course, the price growth in the chart is just an indirect result of money supply growth, but these average trends tell us more of where the money is going and what to expect.
Notice that the cycle of the trend in the chart didn't reverse in 2013. It's kind of alarming that the cycle was interrupted like that and it doesn't seem like that's what nature had intended. Nobody stayed in gold for very long and it was because they were essentially forced out by rising asset prices.
Consider that the price of gold is lagging from the S&P by a factor of 2.13. That doesn't seem like very much, but if you were to measure the most extreme gaps historically, you'd get something like this:
2022: Gold lags S&P by 2.1x 2001: Gold lags S&P by 4.5x 1983: S&P lags Gold by 3.7x 1970: Gold lags S&P by 2.5x
Given that the ratio of 2.5 in 1970 was a precursor for an inflationary environment, I don't think it's safe to assume we're safe with a factor of 2.1 in 2022. The breakout in the rate of change of inflation is also similar to 1970.
I can't help but think that gold will eventually breakout price as a response to the recent money supply growth. The money supply grew by 40%, and the new money already rotated into assets, so at some point it becomes a tailwind to gold.
As far as the predictions in the chart go, I'll give (a) maybe a 10% chance, and (b) a 90% chance. The reason I think (a) is unlikely is that I don't believe that the FED will be able to reduce its balance sheet while raising rates - without intervention and reversing course. It's hard to think that the FED could do one of these things at once, much less BOTH at the SAME TIME. Pure insanity. But this is what they will do, a complete reversal of their combined irresponsible choice of lowering rates and blowing up their balance sheet. Imagine flailing helplessly like a leaf in the wind, threatened by every little breeze. This is the FED. They don't have the courage to truly do the right thing and let malinvestment go bankrupt, let dead wood burn, and let the economy recover without intervention. They are at the behest of the large lenders of the banking system. This organization of the FED will always choose to serve the lender, not the borrower.
Ultimately, the FED will do as little as possible, but just enough to get by and to not be abolished, for now. But if stocks fail in a similar way to 1930, I think they will eventually bail out stocks directly, which ultimately means more inflation. Even though they have the intention of leaving the market, they are destined to own all of it through drastic policy changes like this.
This is kind of how I envision the government ownership of public companies starting: the peaking demographic of USA retirees who rely on their assets as savings will eventually need a bailout. They will do this because bankruptcy in large companies is absorbed into the money supply. Imagine if every time someone lost a leg or an arm, you lost part of your leg or arm. This is a symptom of design in a fragile system: if localized failure causes harm to everything in the system globally, this system is less prone to growth overall. Thus, pushing the bankruptcy of corporations onto the money supply means everything in the system is less likely to be healthy.
Eventually, this globalized harm emanates to savings. At some point, you need to print money to not only satisfy spenders, ie. 2020, but you ALSO need to satisfy savers. Spenders are short-term oriented, savers are long-term oriented. Once you expand the money supply in order to satisfy both the long-term and short-term, the money essentially becomes useless. Money brings future wealth into the present. Without the backing of long-term savers, short-term spenders have no wealth to draw from when they spend a dollar. Without savers, you have no spenders. When the retiree demographic uses a majority of their savings, I think something peculiar will happen. The FED will print more dollars to make the economy seem stronger, which ultimately makes the economy and dollar weaker. Does that make any sense to you? This, in my opinion, will be the slow end of the dollar. As with any reserve currency, I think it will stick around longer than most think, though.
Unfortunately the CPI doesn't go back very far. I'd be interested in seeing it go back a bit further, especially during the 1940s during when there was a bunch of deficit spending due to WWI, which I think is an environment similar to the deficit spending of 2020. It seems that the data does exist, just not in the FRED data. I know there's a way to plot custom data for a symbol in pine script, I'm just not sure exactly how to easily import a bunch of custom data samples into a script.
Orange: 4 year SMA of SP:SPX Teal: 4 year SMA of FX_IDC:XAUUSD Green: 2 year ROC of FRED:CPIAUCSL
If you've read this far, you deserve a medal at this point. Let me know what you think, and thanks for taking a look and reading my rants. Don't forget to hedge your bets ;)
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In the commentary above I mentioned that the deficit spending of 2020 seems more similar to that of the 1940s than the 1970s and this chart illustrates it pretty well, Federal Outlays as a Percentage of GDP: