Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Excuse Me Mr Gold. What Year Is It?

Commodities / Gold and Silver 2022 Jan 02, 2022 - 10:29 PM GMT

By: Arkadiusz_Sieron

Commodities Although your calendar may say otherwise, gold is in the 1960s. The question is whether we will move into the 1970s or speed-run to the mid-2010s.

Did you go overboard with your time travel and lose track of time? Probably not, but just in case, I assure you that the current year is 2021. To be 100% sure, I fact-checked it on a dedicated webpage for time-travelers. However, the authority of science is being questioned, and there are people who say that, from a macroeconomic point of view, we are approaching the 1970s, or at least the 1960s. There are also voices saying that the gold market is replaying 2012-2013. Although appearances point to 2021, let’s investigate what year we really live in.

The similarities with the 1970s are obvious. Just like then, we have high inflation, large fiscal deficits (see the chart below), and easy, erroneous monetary policy. Fifty years ago, the Fed blamed inflation on exogenous shocks and considered inflation to be transitory too. The new monetary regime adopted by the US central bank in 2020 also takes us back to the 70s and the mistaken belief that the economy cannot overheat, so the Fed can let inflation run above the target for a while in order to boost employment.

The parallels extend beyond price pressure. The withdrawal of US troops from Afghanistan reminded many of the fall of Saigon. The world is facing an energy crisis right now, another feature of the 1970s. If we really repeat those years, gold bulls should be happy, as the yellow metal rallied from $35 to $850, surging more than 2300% back in that decade (see the chart below).

However, there is one problem with this narrative. In the 1970s, we experienced stagflation, i.e., a simultaneous occurrence of high inflation and economic stagnation with a rising unemployment rate. Currently, although we face strong upward price pressure, we enjoy economic expansion and declining unemployment, as the chart below shows. Indeed, the monthly unemployment rate decreased from 14.8% in April 2020 to 4.2% in November 2021.

The current macroeconomic situation, characterized by inflation without stagnation part, is reminiscent of the 1960s, a decade marked by rising inflation and rapid GDP growth. As the chart below shows, the CPI annual rate reached a local maximum of 6.4% in February 1970, similar to the current inflation level.

Apparently, we are replaying the 1960s right now rather than the 1970s. So far, growth is slowing down, but we are far from stagnation territory. There is no discussion on this. My point was always that the Fed’s actions could bring us to the 1970s, or that complacency about inflation is increasing the risk of de-anchoring inflation expectations and the materialization of a stagflationary scenario. In the 1960s, the price of gold was still fixed, so historical analysis is impossible.

However, it seems that gold won’t start to rally until we see some signs of stagnation or an economic crisis, and markets begin to worry about recession. Given that the current economic expansion looks intact, the yellow metal is likely to struggle at least by mid-2022 (unless supply disruptions and energy crisis intensify significantly, wreaking havoc).

Do we have to go back that far in time, though? Maybe the 2020 peak in gold prices was like the 2011 peak and we are now somewhere in 2012-2013, on the eve of a great downward move in the gold market? Some similarities cannot be denied: the economy is recovering from a recession, while the Fed is tightening its monetary policy, and gold shows weakness with its inability to surpass $1,800. So, some concerns are warranted. I pointed out a long time ago the threat of an upward move in the real interest rates (as they are at record low levels), which could sink the precious metals market.

However, there are two key differences compared to the 2012-2013 period. First, inflation is much higher and it’s still accelerating, while ten years ago there was disinflation. This distinction should support gold prices. The peak in the inflation rate could be a dangerous time for gold, as the disinflationary era would raise interest rates, putting downward pressure on the yellow metal.

Second, the prospects of the Fed’s tightening cycle are probably already priced in. In other words, the next “taper tantrum” is not likely to happen. It implies that a sudden spike in the interest rates similar to that of 2013 (see the chart below) shouldn’t repeat now.

Hence, the answer to the question “what year is it?” should be that we are somewhere in the 1960s and we can move later into the 1970s if high inflation stays with us and stagnation sets in or if the next crisis hits. However, we can leap right into the 2010s if inflation peaks soon and the hawkish Fed triggers a jump in bond yields. It’s also possible that we will see a temporary disinflation before the second wave of elevated inflation. So, gold could continue its struggle for a while before we see another rally.

Thank you.

If you enjoyed the above analysis and would you like to know more about the gold ETFs and their impact on gold price, we invite you to read the April Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor


All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in