March 22, 2022
[This blog post is an excerpt from a recent commentary published at TSI]
Gold is inherently a stronger forex than the US$. It’s because the full provide of gold will increase by about 1.5% yearly, whereas the full provide of US {dollars} seldom grows at a price of lower than 4% per yr and periodically experiences double-digit annual share progress. Consequently, the US inventory market ought to peak in gold phrases nicely earlier than it peaks in US$ phrases, which is precisely what has occurred up to now.
The next weekly chart exhibits the S&P500 Index in gold phrases since 1980. With regard to the previous 25 years, the 2 peaks that stand out on this chart occurred in September-2018 and July-1999. Within the first case, the height within the SPX/gold ratio preceded the SPX’s nominal greenback peak by about 16 months (the SPX didn’t peak in greenback phrases till February-2020). Within the second case, the height within the SPX/gold ratio preceded the SPX’s nominal greenback peak by about 8 months (the SPX peaked in greenback phrases in March-2000).
The latest peak within the SPX/gold ratio occurred in the beginning of December-2021. Based mostly on what’s taking place on the financial and financial fronts, we expect that this can develop into a serious prime (a prime that holds for at the least 3 years). At this stage, nevertheless, what we now have is a pullback to the 200-week MA, which might be in keeping with both an intermediate-term correction inside an on-going main upward development or the primary leg of a brand new main downward development.
The purpose we need to make at this time is that even when the decline over the previous three months of the SPX/gold ratio was the primary leg of a brand new main downward development (the probably situation, in our opinion), it will not be out of the strange for the SPX to make a brand new all-time excessive in greenback phrases through the second half of this yr or the primary half of 2023.
