Gold's secular bull market remains intact even after a sharp correction from its best two-year run in decades, according to an Investing.com analysis. The case rests on three structural pillars: the stock market's own cycle, deteriorating U.S. public finances, and rising central bank demand for the metal.
Gold has corrected sharply after its best two-year run in decades, but the metal's longer-term bull market remains in place.
Stocks have yet to hit their secular peak
The biggest advances in gold have historically followed the end of a secular bull market in stocks — a signal that has not fired yet. Stocks peaked in 1929, and gold stocks peaked eight years later; stocks peaked again in 1968, with precious metals and hard assets topping out more than 11 years after that; and stocks peaked once more in 2000, with hard assets again peaking roughly 11 years later. Equities have yet to reach their own secular top, so the bull run in gold and hard assets remains in its early stages.
A bond market downturn ties into this first pillar. A secular bear market in bonds that began after COVID-19 is already taking shape, echoing the mid-to-late 1960s. Such a bond bear market initially pushes capital toward equities and also supports gold, but over time it undermines stocks — as it did at the end of the 1960s, the point when capital began shifting from equities into hard assets.
U.S. public finances face an extreme mismatch
The bond bear market feeds directly into a second pillar: the deterioration of U.S. public finances. Debt-to-GDP has to come down, most likely through inflation, primarily, and growth.
History offers a parallel: in the late 1980s and early 1990s, interest payments were extremely high while debt-to-GDP stayed low, a mismatch resolved through falling rates, tighter fiscal policy and a technology boom. A similar reversal followed World War Two, when the Federal Reserve's 1942 yield curve control policy helped debt-to-GDP turn lower after 1947.
Today, both interest payments and debt-to-GDP sit at extremes, even as interest on the debt still averages just 3.4%. That leaves yield curve control as the most likely policy response, holding yields down while inflation and nominal growth gradually pull debt-to-GDP lower.
Central banks keep adding to gold reserves
Central banks are raising their gold holdings as they respond to rising U.S. debt, the bond bear market, and a shift toward a more multi-polar world. Gold made up between 40% and 65% of global reserves from 1960 to 1990, reaching near 65% around the 1980 peak, compared with just 27% today. Central bank buying played a role in gold's 2018 and 2022 bottoms, and continued purchases may be building a floor under prices now.
These pillars reinforce one another: a bond bear market worsens the fiscal outlook, which in turn feeds more central bank gold buying. The bigger catalyst arrives once the bond bear market spills into equities and triggers a secular bear market in stocks — the point at which a much larger rotation of capital into gold is likely to follow.
Source: Investing.com
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