My Hypothesis: Signal 1: The Fed drastically lowers the interest rates. Money supply increases. Stocks inevitably go up due to there being more money in circulation. Signal 2: The Fed notices the inflation and drastically raises interest rates. Money supply becomes stagnant. Signal 3: Money supply is stagnant, however, stocks continue to rise. We are now in a bubble. POP! Repeat...
How long can this continue? The Fed has painted itself into a corner and has already gone down to basically 0% interest. Will they have a negative interest rate next time? 6 Years of an artificially low interest rate has created a fake bull market that's only growing because money supply has drastically increased. This bubble looks like it could hurt much worse than the last two.
Why doesn't the fed stop making drastic increases/decreases to the interest rate? Why not a more gradual/linear change in rates? This feels like a casino. Could The Fed learn from history? Maybe. But not likely when you factor in politics. The Fed would have to sit by and watch the economy crashing while it only gradually lowers interest rates over a much longer period of time, which would drag out the recession. Are they willing to do that? The last two bear markets lasted 1.25 and 2.5years. Imagine a recession that lasted 5+...
As for gold... During the Dot Com Bubble, gold dropped 30% but eventually rose into the Housing Bubble. Then during the Housing Bubble it kept rising and went on to hit an ATH. This time around, I'm confident gold will never see $800 again, and the top could be 5k+. It'll be interesting to see how gold acts during this bubble, will it continue up as it did during the Housing Bubble? Or is it going to go sideways for a while before a huge move up?
Takeaways For me, it's incomprehensible to see how this doesn't fail, eventually. Will it be after this next bubble? 20 years from now? 50? I have no idea, but considering we're in a casino, I'm All-In that this is going to get ugly. (never mind when technology/AI starts taking more jobs while the global population is increasing...)
Time will tell, but for now, staying in stocks and gradually shifting to gold (and silver) in the coming years seems like the best "bet" OH! & don't forget about crypto... ;)
While the fed has raised rates, I think drastically is not the best term to use. Consider this possibility, with negative rates in Europe, inflation in the rest of the world that makes ours look tepid... if you were wealthy and lived in Argentina, Brazil, Ecuador, Indonesia, South Africa or 60 other countries... where would you put your million or millions? If it was me, I would put it in the Dow. The top 30 companies in the would, valued in Dollars that are safe from double and in some cases triple digit inflation. So maybe is just lots of demand and only so much supply.
Until the general public loses complete faith in the US gov’t or war I don’t see gold leaving the $1000 to $1450 range. But when that happens, need to be on the gold train.
TheZenDegen
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@ChannelFisher, Looks like it's time for you to join the Gold train xD
liamcambra
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@ChannelFisher, In my opinion, inflation around the world and US dollar devaluation will keep gold up. Temporarily, it'll keep equities up for a while, but with a "trade war" and uncertainty, I think gold is the smarter bet. My "min" line for gold on this chart was assuming absolutely no uncertainties, no legitimate trade war and no currency devaluation. I don't think we ever see $1200 again, let alone $1000.
You may find my more recent XAUWCU chart interesting, which takes inflation around the world into account; Gold is at all-time-highs when all major currencies are considered.
ChannelFisher
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@liamcambra, @copyrat, @TommyNunez, it used to be that gold and the Indices were inversely related. Seems of late they move together more often than not. Thus I don't think this is inflation related. I think it is a confidence issue. Recent poll states 36% of US citizens believe the #1 problem that USA faces is government. This is also driven by fear of the unrest and possible seeds of serious conflict between Hong Kong/China, USA/China, USA/Russia, GB/EU, USA/Iran, North Korea, Turkey, France, Mexico, South Africa, Venezuela, (that's the short list). I think gold has turned bullish because the USA is involved in so many of these while the political parties are in an unbecoming way screaming they have no confidence in each other. As far as the Gold Train, I think the conductor is going to let everyone have a chance to kiss friends and family goodbye at $1350-$1400 before he cries...all aboard! I hope to catch that bounce. Either a fractal/Kijun bounce at 1450ish or an A-B-C Correction to $1350-$1400. But nothing is certain except this will be exciting....
TommyNunez
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if we get a massive equity rally gld will get crushed
liamcambra
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@TommyNunez, It could. Or people could realize it's just because of inflation and flock to gold as well.
Until the general public loses complete faith in the US gov’t or war I don’t see gold leaving the $1000 to $1450 range. But when that happens, need to be on the gold train.