Personal Finance Articles

Gold Breaks Out Decisively Over China’s Atrophy

by | Personal Finance

Gold Breaks Out Decisively

My next-door neighbor is a steel dealer. He brokers large steel shipments for the construction industry and has been texting me for close to a year saying that the stock market has no clue how bad the global recession is about to get and that the housing sector is dead.

It’s hard to argue with the factual parts of his statement. The housing market is the slowest it’s been in decades, and China is actually crumbling in the age of peak globalization, but betting against the stock market wasn’t a good conclusion of the situation.

I’ve been calling the bottom since June 2022, and after the double bottom we saw in October 2022, the markets have come roaring back, so it’s essential to decouple facts and simplistic conclusions!

Facts mirror TODAY’S reality while the pricing of the stock market is in line with future expectations… sometimes those are 2-3 years into the future, and sometimes the market can’t even see one week ahead, but it’s never about the present.

Courtesy: Zerohedge.com

In 2021, the stimulus party ended, and the markets cut through the bubble like butter. Once the millennials and their army of trading platforms couldn’t sink more of their savings into dream businesses that commended valuations that only lunatics with no math knowledge would pay for stocks, the plummeting of share prices resulted in gargantuan losses, with some down 70%-90% and worse.

Next up, the world’s greatest and best companies began to see their multiples compress. By October 2022, most of the premium that the market was willing to pay for growth had dissipated.

The global economy lived to see another day, though… growth didn’t stop and WILL NEVER stop, but the risk premium had shrunk. After a year of insane appreciation, the NASDAQ and S&P 500 are expensive again.

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    What this chart tells you is to BUY GOLD, and the reason is because stocks are terribly expensive as a whole:

    Courtesy: Zerohedge.com

    Just spend a couple of minutes on the chart above… anytime it has been this low since 2003, gold has shot up hard. 2009, 2016, 2018, and 2021 are clear examples of this.

    Then, look at the chart below, which portrays what a trainwreck China’s economy is right now and their real estate super bubble, which is far bigger, uglier, and messier than the 2008 subprime disaster ever was. You’ll immediately notice in ALL previous cases that when their bonds yielded this pathetic return, gold roared higher!

    Courtesy: Zerohedge.com

    My next-door neighbor spent the past summer in Shanghai and told me he has never seen it this empty in his adult life. He also told me something that might not be popular to say, but he said that Americans that wish to criticize Washington’s reckless spending are welcome to go to China, where the government is so totalitarian that it hampers the private sector from helping its economy recover.

    China is learning the hard lesson of having a one-man show at the head of its government… it only works for a limited time, but like all centric regimes, it misses out on the power of the free enterprise system, which America is still the undisputed champion of.

    In my opinion, gold is enjoying a number of strong tailwinds:

    1. An expensive stock market.
    2. Market expectations that the FED is done hiking.
    3. China’s utter collapse and desperate need to stimulate.

    I absolutely wouldn’t bet against gold right now. 

    Best Regards,

    Lior Gantz
    President, WealthResearchGroup.com

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