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Just for a
change and on the off chance that we will be able to obtain some useful
information by doing so, we'll now take a look at some long-term monthly charts.
The blue line on each of these charts is the 12-month moving average.
The first two
long-term charts show the S&P500 Index and the US$ gold price. We have
put the gold chart immediately below the S&P500 chart to illustrate that
secular trends in the gold and equity markets are linked. For example, gold's
current secular bull market is linked to the S&P500's current secular
bear market. To put it another way, gold is currently in a secular bull
market BECAUSE equities are in a secular bear market. The implication is that
gold will remain in a secular bull market until the S&P500 becomes
under-valued based on traditional valuation metrics.
The long-term
chart shows that gold has not experienced a correction of real significance
since 2008. Investors should therefore acknowledge the possibility that gold
will trade sideways for 1-2 years before resuming its long-term advance.
The next
chart shows the long-term performance of the XAU, an index dominated by
senior gold producers. Comparing this chart to the gold chart displayed above
highlights a point we've made many times in the past, which is that
gold-mining stocks, as a group, do not offer long-term leverage to gold
bullion's upside. Gold mining stocks are for trading.
Silver's
long-term chart reveals a 30-year round trip.
The upside
blow-off in the silver market that ended in April of this year created a peak
that probably won't be exceeded until at least the year after next, but a lot
will depend on the Fed. To be more clear, silver's
eventual rise to a new all-time high will probably be driven by another round
of rapid monetary inflation.
We are
including a chart of Hong Kong's Hang Seng Index
(HSI) for two reasons. First, Hong Kong's stock market has led the US stock
market at the most important turning points of the past few years. Second,
the HSI has spent the past 15 years oscillating between the top and the
bottom of a wide upward-sloping channel. The next decline to the bottom of
this channel could mark the next major turning point for equities on a global
basis.
Copper is
sometimes called "Dr. Copper" because trends in its price
supposedly indicate the health of the global economy. We don't see it. The
idea that an upward trend in the copper price would indicate a strengthening
economy isn't logical because real growth causes prices to fall, not rise.
Also, the major trends shown on the long-term copper chart (see below) don't
appear to be related to trends in real economic growth.
Copper, due
to its relative scarcity, benefited greatly from the monetary inflation of
the past decade. It should continue to benefit from monetary inflation during
the current decade, but to a much lesser extent.
Oil was very
expensive at $140/barrel in mid 2008. More than
three years and a lot of monetary inflation later, it doesn't look expensive
at around $85/barrel.
The bear
market in the Dollar Index that began in 2000-2001 took a remarkably similar
path to the bear market in the Dollar Index that began in 1985. We have
attempted to highlight the similarity on the following monthly chart by
numbering the major turning points.
It made sense
to be long-term bearish on the Dollar Index during 2000-2007, because during
the bulk of this period the US$ was over-valued against the euro on a
purchasing power parity basis. Since the final quarter of 2007 it hasn't made
sense to be long-term bearish on the Dollar Index because the US$ has, since
that time, been either fairly valued or under-valued relative to the euro.
Our final
long-term chart shows that the T-Bond has worked its way higher within a
well-defined channel over the past 25 years. Despite its steady advance over
such a long period, surprisingly few people are bullish on it.
We are
long-term bearish on the T-Bond because it is extremely over-valued based on
our inflation outlook. However, we have no idea WHEN the valuation-related
risk will materialise. We therefore remain
disinclined to place a bearish bet.
Steve Saville
www.speculative-investor.com
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