Gold’s on a Tear – Is This the End of the Stock Rally and the Beginning of the Aftershock? Not a Chance

April 25, 2024

By Robert Wiedemer

Gold is on a tear – up 13% year to date!  Silver is doing even better – up 15% year to date.  Compared to the S&P 500 which is only up 4% year to date and the NASDAQ 100 which is only up 5.75% year to date, it’s a complete blow out.

Sounds like the Aftershock is near?  Not a chance.  Why? Lots of reasons.  First the Fed isn’t printing any money now.  In fact, it has vacuumed almost $2 trillion out of the economy since March 2022.  Wonder why the 10 year rate is so much higher than 2021?

Second, the stock market has been doing very well.  Over the last year the S&P is up 21% and the NASDAQ 100 is up 33%.  Gold is only up 17% over the last year.  Third, we have almost no inflation -- barely 3.5%.

No Aftershock Unless We Have Lots of Money Printing and High Inflation

But, maybe, the recent outperformance of gold overcomes all that?  Not quite.  To have an Aftershock, you have to have high inflation and lots of money printing. 

As for the poor recent stock market, it was to be expected that at some point the rally of the last 5 months would end and pull back.  Plus, the 10 year rate has jumped almost a half percent in April to 4.6%.  That kind of jump is never good for the market short term.  But stocks will adjust to the higher rate, just as they have already adjusted from 1.5% interest rates in 2021 to 4% in 2023.

Also, gold’s outperformance over the last year isn’t nearly as good when compared to leveraged S&P index ETFs.  Gold is up 17% but SSO (double levered S&P 500) is up 38.5% and SPXL (triple levered S&P 500) is up 55%.

Gold’s Performance This Year Validates Our Long Term Strategy

However, gold’s outperformance is a very good sign that our long term strategy of re-balancing out of interest rate sensitive assets, such as stocks, to non-interest rates sensitive assets, such as gold, is a very solid strategy.  That’s because the main reason gold is jumping this year is a growing concern that something is wrong with our government’s financial policies. 

Can we really continue to borrow $2 trillion a year and never have to pay it back?  The fears may not be that specific but there is clearly concern among some investors that trouble is afoot.  Sure, part of the increase in price is due to central banks, such as China, buying more gold, but we feel the rapid increase in the price of gold reflects broader and deeper concerns.

This is exactly what we would expect to happen in the future as the government borrows more money and prints more money. However, over the next few years, until we see that massive money printing and we get much higher inflation, we expect the stock market will produce better returns, especially if you are investing the Bull Bear way. 

As for now gold continues to be a good investment, just not nearly as good as stocks in your broader portfolio. But is it a great time to buy some physical gold?  Absolutely.  And silver seems to be finally joining the gold rally.

We’re not at the Aftershock, but the recent strong outperformance of gold vs the S&P 500 tells us that we are on the right track when it comes to our long term investing strategy.  But, until then, ride the bull -- just be ready to dodge the bear.  The Bull Bear way of investing.