This is NOT a Normal Gold & Silver Market..

Key Concepts

• Secular Bear Market in Bonds: A prolonged period of declining bond prices and rising yields.
• Total Real Return of Bonds: The nominal return of bonds adjusted for inflation.
• 80-Month Moving Average: A technical indicator used to identify long-term trends.
• Cup and Handle Pattern: A bullish continuation pattern in technical analysis.
• 200-Day Moving Average: A widely used technical indicator for identifying trends and potential support/resistance levels.
• Cyclical Bear Market: A shorter-term downturn within a larger secular bull market.
• International Reserves: Assets held by central banks and monetary authorities to back liabilities and influence monetary policy.

The Gold and Silver Market: A New Paradigm

The current gold and silver market is not behaving according to historical patterns observed between 2000 and 2022-2023. Instead, it is mirroring the dynamics of the 1960s and 1970s. This shift is primarily driven by a new secular bear market in bonds.

The Secular Bear Market in Bonds and Its Implications

1. Historical Context of Bond Returns:

• Data from the early 1900s shows that secular bear markets in bonds are rare.
• The only significant secular bear market in bonds between 1920 and 2020 occurred from the mid-1960s to the early 1980s.
• During secular bull markets in bonds, investors could consistently make money.

2. Identifying the Current Secular Bear Market in Bonds:

• The current secular bear market in bonds began after the COVID crash.
• This is evidenced by the total real return of bonds falling below the 80-month moving average, a pattern similar to the mid-1960s.
• In the 1960s, the secular bear in bonds began around 1965 when total real return struggled with the 80-month moving average.
• The current period shows a similar breakdown after the COVID crash.

3. Capital Flows During Secular Bond Bears:

• During a secular bear market in bonds, money flows out of bonds.
• Initially, this money flowed into stocks.
• More recently, there has been a significant shift of capital into gold.
• While money still flows into stocks to some extent, the trend towards gold is more pronounced than in previous periods.

4. Stock Market Performance During Secular Bond Bears:

• Contrary to common fears, stocks do not typically crash during secular bear markets in bonds.
• This is because bonds offer a less attractive alternative for investors seeking safety.
• Analysis of historical rate of change data for the stock market (3-day, 8-day, and 20-day declines) shows that the worst crashes have occurred during periods outside of secular bond bears (e.g., the 1930s, 1940s, 1987, 2008, and the COVID crash).
• While there have been sharp declines during secular bond bears, they are generally less severe than those seen in other market environments.
• The structure of bear markets within a secular bond bear can differ, with crashes sometimes occurring at the end of the bear market rather than in the middle.

Central Bank and Sovereign Wealth Fund Behavior

1. Increasing Gold Reserves:

• A significant difference between the current period and the 2000s is the increasing allocation of international reserves to gold by central banks and sovereign wealth funds.
• Gold currently represents approximately 25-26% of global international reserves.
• This trend is more comparable to the 1970s, when gold's share of international reserves steadily increased from less than 40% to about 65%.
• In contrast, during the 2000s, there was minimal increase in gold as a percentage of international reserves.

Technical Analysis of Gold and Silver

1. Gold's Major Breakouts:

• Gold has experienced three major historical breakouts: in the 1970s, in the early 2000s, and most recently in March 2024.
• The March 2024 breakout, stemming from a cup and handle pattern, is significant because it led to a new all-time high.
• This is more akin to the breakout in the early 1970s, which also led to new all-time highs, rather than the breakout in the 2000s, which did not reach new all-time highs.
• The secular bull market in gold from 2001 to 2011 involved significant time spent consolidating and overcoming resistance.
• The current secular bull market, beginning with the breakout to new all-time highs, is expected to be characterized by sustained new highs, similar to the 1970s bull market.

2. Silver's Historical Breakouts and Future Potential:

• Silver had a significant breakout in 1967, taking out the 1920 peak, and another in 1973, surpassing the Civil War peak.
• Following the 1973 breakout, silver experienced a surge for over six years.
• The 2001-2011 secular bull in silver did not spend as much time at new all-time highs before a subsequent bear market.
• Currently, silver has closed at new all-time highs on daily, weekly, and quarterly terms, with monthly terms pending.
• A breakout past $50 is anticipated.
• If the current pattern mirrors the 1973 breakout, the secular bull market for silver could last another 6-7 years, extending into the early 2030s.

3. Gold Corrections in the 1970s vs. the 2000s (Using the 200-Day Moving Average):

• 2000s: Gold frequently tested the 200-day moving average during its bull market. The only exception was after breaking to a new all-time high, where it held above the 200-day for over two years.
• 1970s: After breaking to new all-time highs (1972-1974), gold tested the 200-day moving average less frequently. During the cyclical bull market from 1976-1980, there was only one significant test of the 200-day moving average.
• Implications for the Present: When gold is at new all-time highs, fewer but sharper corrections are expected. The 1970s saw significant corrections (e.g., 28%, 23%, 45%, 20%).
• The 200-day moving average is identified as a strong potential buying zone when gold gets close to it.

Conclusion and Key Takeaways

The current gold and silver market is best understood by looking at the historical parallels of the mid-to-late 1960s and the 1970s, rather than the 2000s. The ongoing secular bear market in bonds is a primary driver, leading to capital shifts into precious metals. Central banks' increasing gold reserves further support this trend. Technical indicators suggest that both gold and silver are in secular bull markets with significant upside potential, though volatility is to be expected, particularly as gold trades at new all-time highs. The 200-day moving average is highlighted as a key level for potential buying opportunities.