Inflation or Deflation - what cometh next?

OANDA:XAUUSD   Gold Spot / U.S. Dollar
Short answer. Deflation. Lots of it.

This idea is an extension of the Gold study recently published, which you can find below. Gold price action is a fantastic leading indicator for forecasting inflationary / deflationary periods.

On the 3-month chart above Gold price action is shown. The lower half, the current rate of inflation as recorded by the Bureau of Labour statistics.

Look left. (Read the Gold idea?) When Gold MACD on the 3-month crosses down (red circles) a significant deflationary period follows. In fact I’m unable to find a single instance when this was not the situation looking all the way back to the 1970s.

More significant than everything said so far is the ‘rate of change’. Inflation / deflation by itself over an elongated period of time is a non-issue. A rate of change over a shorter period is another matter, especially when inflation is high. The harder you rise the harder you fall. The early 80’s being the best example. Will talk about this more on the Patreon page.

What does all this mean? Significant corrections against inflated assets. Equities, housing, limping from one recession to the next just as was in the 80s.

For those of you that don’t remember:

“The United States entered recession in January 1980 and returned to growth six months later in July 1980. Although recovery took hold, the unemployment rate remained unchanged through the start of a second recession in July 1981. The downturn ended 16 months later, in November 1982.”

It is my opinion that if a rate of deflation like that of the early 80’s was seen then we’re almost certainly going to see that period repeat itself over the next 2-3 years.


Gold study
Comment: Some understandable questions:

"How can the cryptocurrency space go into a bull market during a deflationary period?"

Consider this…

Ask any Bitcoin maxi to explain the benefits of Bitcoin and the words ‘inflation hedge’ will be spill out at some point between the utopia drivel.

Okay, let us look at how Bitcoin has performed since the last time price action was at $19k, which would be November 2020.

The facts since that time:

Inflation: The rate of inflation was 1.3% and has now increased 600% to a 9% peak thus far.

Bitcoin: 0%. A massive fat 0% gain in the face for a 600% increase in the rate of inflation.

I think it is safe to say the ‘inflation hedge’ argument is out of the window. The 50th floor window.

Would you agree if an asset performs this badly in an inflationary environment it would do the opposite should those conditions reverse? That’s my opinion.

On recessions. Recessions are not a bad thing if you know what you’re doing. They are wealth transfer opportunities. Take advantage of the situation.




Allow 3-6 months on ideas. Not investment advice. DYOR

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