Mike McGlone: Gold’s Record Run Is Flashing a Market Warning

Key Concepts

• Gold as a Risk-Off Asset: Gold's performance relative to other risk assets, particularly during periods of market stress.
• Commodity Market Dynamics: Analysis of various commodities like gold, silver, copper, iron ore, crude oil, and their drivers.
• Technical Analysis: Use of moving averages (e.g., 60-month mean) and historical price patterns to forecast market movements.
• Fundamental Analysis: Examination of economic factors such as US deficits, anti-dollar sentiment, Fed credibility, geopolitical events, and supply/demand dynamics.
• Market Valuation: Assessment of asset prices relative to economic indicators like GDP and historical averages.
• Volatility: The degree of variation in trading prices over time, used as an indicator of market sentiment and risk.
• Risk Management: Strategies for mitigating potential losses in investment portfolios.
• Macroeconomic Indicators: Using commodity prices (especially copper) as barometers of global economic health.
• Deflationary/Inflationary Cycles: The potential for shifts between inflationary and deflationary economic environments.

1. Gold's Outperformance and Market Signals

• Main Topic: The exceptional performance of gold in the current market environment and its implications for broader risk assets.
• Key Points:
  • Virtually all risk assets have underperformed gold, a phenomenon last seen in 2008.
  • Gold has experienced a parabolic rally, with its price reaching historically stretched levels relative to moving averages.
  • The gold-to-copper ratio has reached an all-time high, signaling potential global economic issues.
  • Gold has also shown high ratios against silver and crude oil, with only the US stock market being relatively "cheap" against gold.
• Technical Details: Gold's price has reached a significant threshold around $4,000 an ounce, being the most stretched it has been since the late 1980s relative to moving averages (40, 50, or 60-month, 200-day). The premium of spot gold to its 60-month mean hit 92% on October 17th, a historically extreme level comparable to peaks in 1981, 2006, and 2008.
• Supporting Evidence: Gold's year-to-date performance (as of October 28th) is up 51%, making it the fourth-best year in the last 100 years, following massive inflationary periods in 1979, 1972, and 1973. This rally is occurring despite historically low stock market volatility.
• Argument: Gold's extreme appreciation, especially when other risk assets are underperforming, is a warning sign about the broader market.

2. 2025 Metals and Mining Predictions and Performance

• Main Topic: Review of specific predictions made by Bloomberg's Metals team for 2025 and their actual performance.
• Key Points:
  • Prediction 1: Gold will outperform stocks. This prediction held true.
  • Prediction 2: Silver will outperform gold. While silver has shown higher volatility and significant gains (up 60% year-to-date vs. gold's 50%), on a risk-adjusted basis, it should have been higher. Silver reached a new high but then pulled back.
  • Prediction 3 & 4: Iron ore prices going lower and mined copper supply jumping 2%.
    • Iron ore has been flat for a couple of years, indicating a lack of economic demand from China.
    • Copper supply has faced significant curtailments and production issues, leading to price increases for the "wrong reasons" (supply constraints rather than demand pull).
• Specifics:
  • Silver is up 60% year-to-date, gold is up 50%.
  • Silver's volatility is double that of gold.
  • Copper's price is around $5.60, with a risk of falling to $4 rather than sustaining above $6.
• Technical Terms: "Risk-adjusted basis" (evaluating returns relative to the risk taken), "curtailed supply" (reduced production).

3. Drivers of Gold's Strength and Market Concerns

• Main Topic: Factors contributing to gold's recent surge and the strategist's concerns about its sustainability and broader market implications.
• Key Points:
  • Geopolitical Factors: The continuing war in Ukraine and other global conflicts are keeping the gold market bid.
  • US Stock Market Valuation: The US stock market is historically expensive, acting as an offset for gold.
  • Presidential Influence: Gold has benefited from the current president's pushback against the Fed and tariffs, disrupting the world order.
  • Concerns about Gold's Stretch: Gold is considered "very much" stretched historically at $4,000 an ounce, suggesting a need for risk management and potentially lightening up positions.
  • Comparison to Bitcoin: Gold's current state is compared to Bitcoin reaching $100,000, after which the crypto market languished. Gold is seen as "stuck" waiting for its next catalyst.
  • Scary Disparity: The greatest disparity in history between rising gold and falling crude oil is a significant concern.
• Argument: The current market setup, with gold outperforming virtually all risk assets, is a warning sign of underlying issues.
• Quote: "It's a scary thing when virtually every risk asset on the planet underperforms gold." (Mike Mcloone)

4. The Role of Technicals vs. Fundamentals

• Main Topic: The interplay between technical and fundamental analysis in understanding gold's recent price movements.
• Key Points:
  • The speaker identifies as both a technician and a fundamental analyst, adapting to what matters most at any given time.
  • When prices become extremely stretched relative to historical averages, technicals can become more dominant than fundamentals.
  • Gold's move to $4,000 was preceded by a "perfect bull flag" technical pattern, but the question now is what comes next.
  • The speaker emphasizes the importance of being "above the curve" and "ahead of the curve" by looking beyond consensus views.
• Technical Terms: "Moving average" (a technical indicator showing the average price of an asset over a specified period), "bull flag" (a chart pattern indicating a potential continuation of an uptrend).
• Argument: While fundamentals always matter, there are times when technical signals become paramount, especially at extreme price levels.

5. The Significance of the 60-Month Moving Average

• Main Topic: Explanation of why the 60-month moving average is a key indicator in the speaker's analysis and its historical context.
• Key Points:
  • The 60-month moving average is a standard in commodity analysis, representing a five-year average.
  • Other moving averages (40, 50-month, 200-day, 200-week, 100-week) are also considered, but the 60-month is a primary focus.
  • The extreme premium of gold to its 60-month mean indicates a highly stretched market.
  • This level of stretch is historically significant, comparable to previous market peaks.
• Data: The premium of spot gold to its 60-month mean hit 92% on October 17th. Prior peaks in 1981 and 2006/2008 were around this level, with 2011 being slightly less.
• Argument: The 60-month moving average provides a crucial long-term perspective on gold's valuation and signals when the market is overextended.

6. Historical Parallels and Potential Future Scenarios

• Main Topic: Drawing parallels between current market conditions and historical events, particularly 2008 and periods of deflation.
• Key Points:
  • The current situation, where nearly all risk assets underperform gold, is reminiscent of 2008.
  • The speaker expresses concern about what gold's extreme performance might signify for the future, potentially a warning of a significant market downturn.
  • The possibility of "normal deflation from inflation" is a key worry, citing historical examples like 1929 (US), 1989 (Japan), and 2008 (US).
  • China's current deflationary signals (low bond yields) are noted as significant, given China's role as a major gold buyer and copper consumer.
  • The market's addiction to Fed easing and monetary stimulus is seen as a setup for disaster.
• Examples:
  • 2008: A year when virtually every risk asset underperformed gold, leading to a significant market crash.
  • Bitcoin's Peak: Bitcoin reaching $100,000 and then languishing is used as an analogy for gold potentially stalling.
  • Historical Deflationary Periods: 1929 (US), 1989 (Japan), 2008 (US) are cited as periods that transitioned into deflation following market excesses.
• Argument: History suggests that extreme market valuations and unusual asset performance can precede significant economic shifts, including deflationary periods.

7. The Role of Copper as a Macroeconomic Indicator

• Main Topic: Copper's function as a leading indicator for the global economy and its current unusual behavior.
• Key Points:
  • Copper is traditionally viewed as a "Dr. Copper" indicator, reflecting global economic expansion.
  • This year, copper's price increase is primarily driven by supply constraints and production disruptions, not strong demand pull.
  • Copper's price is currently around $5.17, with a risk of falling to $4.
  • Copper's correlation with bond yields and crude oil is noted; when these are falling, copper typically follows.
• Technical Terms: "Demand pull" (demand driving prices), "supply constraints" (limited availability of a commodity).
• Argument: Copper's current price action, divorced from its typical demand-driven drivers, suggests underlying economic weakness that is being masked by supply issues.

8. The Gold-Silver Ratio and Shifting Market Dynamics

• Main Topic: Analysis of the gold-silver ratio and how the roles of gold and silver in the market are evolving.
• Key Points:
  • The gold-silver ratio has reached historically high levels, with a peak around 105 and currently around 84.
  • Historically, a ratio above 90 was considered expensive.
  • Silver is increasingly becoming an industrial metal (e.g., solar panels), while gold is being hoarded by central banks.
  • This shift means the gold-silver ratio may not function as a traditional precious metals indicator in the same way it once did.
• Data: The highest closing price in the gold-silver ratio in history is around 90. The current ratio is 84, having recently dropped below 80.
• Argument: The changing nature of silver and gold's roles in the market impacts the interpretation of their ratio as a market signal.

9. The US Stock Market's Unprecedented Valuation

• Main Topic: The extreme valuation of the US stock market and its implications for the broader economy.
• Key Points:
  • The US stock market is at its highest valuation relative to GDP in history, surpassing 1929 and the Japanese market in 1989.
  • This unprecedented valuation makes the stock market the "center of the universe" and the primary driver of economic sentiment.
  • A significant pullback in the stock market could have severe consequences due to its size relative to GDP.
• Data: The US stock market is 2.3 to 2.4 times GDP, the highest in history.
• Argument: The extreme valuation of the US stock market creates a significant risk of a sharp decline, which could trigger a broader economic crisis.

10. Potential "Lose-Lose" Scenario and Market Warnings

• Main Topic: The concept of a "lose-lose" scenario signaled by gold's extreme performance and the potential for a market rug pull.
• Key Points:
  • Gold's stretched levels are seen as a warning, similar to what happened in 2008.
  • A significant correction in the stock market (e.g., 20-35%) could lead to severe deflation due to the market's size relative to GDP.
  • In a market "rug pull," gold, despite its strength, could also be sold off, as seen in 2008 when it dropped 30% from its peak.
  • The underperformance of high-beta stocks like MicroStrategy relative to Bitcoin is seen as a leading indicator of potential weakness.
  • A slight uptick in bond prices and volatility could signal the beginning of a broader market downturn.
• Example: In 2007, gold had a great year (up 30%), but in 2008, it dropped 30% from its peak.
• Argument: The current market setup is highly precarious, and gold's warning signals suggest a potential for a significant downturn that could impact even gold itself.

11. Lightning Round: Near-Term Outlook

• Main Topic: Short-term predictions for key asset classes.
• Predictions:
  • Bonds: Higher (prices) with increased stock market volatility.
  • Stocks: Lower.
  • Gold: Unchanged.
  • Silver: Unchanged.
  • Copper: Lower, correlated with the stock market.
• Argument: The speaker anticipates a shift towards safer assets like bonds as risks in the stock market increase.

Conclusion/Synthesis

The discussion highlights a deeply concerning market environment where gold's exceptional outperformance across virtually all risk assets serves as a significant warning signal. This phenomenon, last observed in 2008, is attributed to a confluence of factors including extreme US stock market valuations, geopolitical instability, and a potential shift towards deflationary forces. The speaker emphasizes that gold's current stretched technical levels, particularly relative to its 60-month moving average, suggest a need for caution and risk management, rather than continued bullishness. While fundamentals remain important, the extreme price action necessitates a technical lens, indicating that the market may be nearing a peak. The analysis draws parallels to historical periods of market excess and subsequent corrections, suggesting that the current market is ripe for a significant reversion, potentially leading to a "lose-lose" scenario where even gold could experience a drawdown. The speaker's outlook for the near term is cautious, favoring bonds over stocks and anticipating further weakness in commodities like copper. The overarching message is one of prudence and a call to recognize the potential for a major market shift, moving from an era of inflation and stimulus to one of potential deflation.