A Different Way Of Looking At The Rally In The Price Of Gold

This article counters Ken Fisher's assessment of gold, positing that the metal serves as a more reliable indicator of true inflation and dollar devaluation than CPI, and a better predictor of equity market performance. Historically, significant gold rallies, such as those in the 1970s and 2000s, correlated with flat or declining equity returns, while gold's decline in the 1980s and 1990s preceded strong stock market gains. Although gold's current rally since 2020 is less dramatic than previous surges, its sustained all-time highs signal underlying dollar weakness, prompting investor concern regarding potential future equity returns if currency devaluation trends persist.

Analysis

The article asserts gold is a more reliable indicator of true inflation and dollar devaluation than CPI, directly countering Ken Fisher's assessment. Historically, significant gold rallies, such as the 360% return from 2000-2009, coincided with flat or declining equity performance, with the S&P 500 falling 0.95% in that decade. Conversely, gold's decline in the 1980s and 1990s preceded robust stock market gains, suggesting an inverse relationship between gold's strength as an inflation signal and equity market health.

Gold's current 1.6x increase since 2020, reaching all-time highs, is less dramatic than previous surges but still signals underlying dollar weakness and potential currency error. This sustained strength, if gold is accepted as the true measure of inflation, raises concerns about the sustainability of present equity market performance, despite current stock strength.

The analysis distinguishes between BLS (CPI) inflation and gold-indicated inflation, positing the latter as a more accurate "truth teller" about the dollar's value. The moderately negative sentiment for gold (GLD, AAAU) likely reflects the implications of its rise as a signal of economic instability, suggesting current equity strength (SPY positive sentiment) may be masking underlying currency devaluation risks.

Key Decisions for Investors

• Investors should closely monitor gold's performance as a potential leading indicator for future equity market performance and dollar stability, rather than solely relying on traditional inflation metrics like CPI.
• Consider evaluating portfolio hedges against currency devaluation, as the article suggests gold's rise indicates ongoing dollar weakness and potential economic instability.
• Re-assess long-term equity outlook, as the historical inverse correlation between gold's strength and equity returns implies a cautious stance despite current stock market resilience.