Disclaimer
This author has long held a negative view of gold, still do, too. It isn't that gold is worthless, because that's very easy to disprove. It is that gold is outside of a functioning system, it's pretty, but it's not very useful as a store of wealth. However, an analysis must be done. My next series of ideas are small scopes of the bigger Gold picture, which is really a wealth picture, not a specific asset. The design of these pieces are to serve as a developmental method for my own thoughts, as well as a junction for you, the reader, to help. I would love any input, thoughts, contrarian bits, whatever you want, because the point is to learn. This author tries to be thorough, so expect quite a lot of data, much of it conflicting on any specific formal view.
Acronyms!
The following charts have the following data lines to compare:
SPX - S&P500
NDQ - Nasdaq 100
DJI - Dow Jones Industrial Average
DXY - US Dollar Index- compared to broad range of global currencies
TLT - iShares 20 yr Treasury Bond ETF
VYM - Vanguard High dividend yield ETF
CNYUSD - Chinese Yuan to US Dollar
WTI - West Texas Crude Oil
MABMM301USM1895 - M3 Monetary pool, aka all the dollars
USCSHPI - US Case Shiller Index - Housing price average - does not have any formal striation via regional demand, i.e. rural vs suburb
Thesis- Segment 1 - General Relativistic Performances of Asset Classes
This analytical piece serves as a subsection of a greater look at Gold, specifically at it's relative performance to other asset classes. Any introduction must come with an explanation of the cornerstone of the current working global economy: The Dollar is the World Reserve Currency. This is by mutual agreement via global use, not simply dictated by the President of the United States to unwilling nations. If country X with currency X, wants to buy something from country Y with currency Y, they can maintain a trade with each other's currencies via a ratio of X:Y. However, for most countries, this is not a simple task. If Country X and Country Y are limited in relations, especially local currency-designated economic relations, then a ratio of X:Y is difficult to negotiate. Many countries do not have the Central Bank infrastructure, or any bank infrastructure, to settle such a trade, or manage the relative values of it's own currency. While US agencies, such as the Treasury, Office of the Comptroller of Currency, and Federal Reserve, are only one side of this constantly evolving currency marketplace, it is a designated-heavy hand in those discussions. Contrary to algorithmic limitations in cryptocurrencies, real world currencies rely on fluctuating value to ensure global growth. The basic concept is should any country decide to leave the world stage and pursue aggressive policies against other sovereign states, the world can come together and limit economic degradation, i.e. currencies of countries unwilling to cooperate with each other are punished and removed from the greater economic weave. Given the natural prime directive of global growth, it is necessary and right to pursue a compatible framework of relative strength in global currencies. By accepting the Dollar as the World Reserve Currency, all other sovereign states are subject to these rules. Compared to an environment of hard asset backing, i.e. Gold, the wealthiest country is the one with the most of a specific asset, and any country attempting to increase in wealth, must pursue an economic regime of obtaining that asset. Furthermore, trading Gold requires physical settlement, which complicates and punishes international trade. Giving all the gold to one member to manage would repeat the WWII-driven event leading to the Dollar's rise as the World Reserve Currency, where the US took all European allies' gold reserves to protect them from war, and then mismanaged it all. Given that the primary objective for an individual investor is to increase the quantity of wealth, a simple question is formed:
Is Gold going to go up?
Dissecting the dotcom bubble to it's simplest definable period, i.e. the rise and fall, the oddest champion emerges. Sure, in a Dollar denominated system, the Dollar is designed to be the champion. Still, there were plenty of points where medium term price differentials presented relative buying and selling opportunities for one asset class over the other. But to the coma patient, or poor sap with a retirement, the Dollar alone held it's value best. An abiding quant might illustrate a matrix showing a model based on relative asset growth and inflation might lead to positive long-term gains in a high degree with limited management. This author is not. If there is one thing this analysis has elucidated, it is that relying on historical precedent for optimal outcomes is a sure-fire way to miss important wealth modulating factors. In the simplest form, this game is meant to be dirty. A fractal is only as good as it's similarity in system properties.
Breaking the Global Financial crisis into another period yields a different result. Gold was the champion risk asset during the run up, fall, and for gold- run up again. However, gold fell. In fact gold's movement was highly uncorrelated with risk on OR risk off moves. Long bonds didn't shine until the end of the crash, and DXY didn't start to really go up until everything else went down. Housing crashed, as a big chunk of modern economists still debate the exact causes of the GFC, with many believing it was a bubble in housing that popped it all. For the reader old enough to have been an investor, or just about anyone paying attention, but not managing, their retirement, this period was awful. Stocks heavy in retail flows, those geared for retirement accounts, such as the Vanguard high dividend ETF (and many others) saw poor performance throughout the GFC, backing up the claim that the "simplest" way to accrue wealth is to join the majority. Gold's relative strength to other risk asset classes holds up nicely, and it's rise post has many possible reasons. The simplest is the monetary growth supply relative to the rise in China's economy - China was a major benefactor post-GFC with China's real estate forming the bedrock of the Global Bull thesis argument that came after. The US response to the GFC was to bail out the banks and financial infrastructure underlying the American, and global, economy. The difference between now and then, as Gold certainly did not gain the same impetus after the COVID-19 crash, is a major overhaul in the assets banks may hold as reserves, forcing US and EU debt-collateral into their hands over others. This isn't to say that gold wouldn't see an inflationary impulse in the event of M3 growth, but that it would need to come from other capital sources.
In the decade of the GFC and post, the total US Money supply increased by over 100%. Only 3 assets had greater gains in that period: Gold, Nasdaq, and the S&P500. Gold outperformed in various segments, and barring causation, a clear correlation between gold's fall and more broad market risk assets rise is uncovered. The patterns over the last few decades, in combination with the evolving financial landscape and investment vehicles, creates a conflicting story. In some market disturbances, Gold wins, and in others it loses. Gold is an evolving risk asset class. Nasdaq's resurgence over other equity-risk assets mimic the past, primarily because NASDAQ is a small-cluster high-inflow asset designed around "high-growth" companies. Dow Jones is a group of 30, but is weighted across a mix of companies thought to be relatively stable. However, it is clear stability is a relative construct to risk, and risk is volatility. Thus, equities present themselves as multiple flavours of the same asset class, but a true striation along sector yields a very different story. As such, any model attempting to find correlations across changing groups of low-generality suffers from major limitations.
Believing gold is going to go up is tantamount to believing in hyperinflation, not in any singular or group of sectors, but in the devaluation of the dollar itself. Barring fees, thinking $100 of gold now is going to be worth $150 later, is claiming a 50% devaluation of the dollar over gold. It is more than possible for the Dollar and Gold to raise together - for TradingView please see future pieces as Idea functionality limits long-form analysis. The issue with using correlations to suggest causation, and directionality, is that nothing is in a vacuum. The geopolitical and macro-economic differences between 1999, 2008 and 2021 are vast. Attempts to use previous relationships, even if all possible relationships are accounted for, assumes that the system has an integrated reversion-to-mean function; that the world will always go back to a previous vector. As of the latest data, direct relationships to the past are difficult to draw. A simple comparison between M3 and Gold across various asset inflationary periods might dictate a hypothesis of slow growth for gold over the next few years. A more theoretical economist might pull out supply-demand curves, Central bank reserves, corporate treasuries, etc., and show that Gold is about to undergo hyperinflationary growth due to the possibility of hyperinflationary currency battles over the next 5-10 year span. While still, a recessionary model might even suggest Gold has some value to shed.
The goal of these analyses is not to offer finality, because finality can never be reached. The economy is a living breathing system because it is a system of living breathing creatures. This sub-analysis' scope is limited towards relative asset performance, while the larger analysis will try to weave everything together to create a more thorough, but much larger picture. If there is one lesson to be learned from an expansive analysis of relative asset performances, it is that it is never okay to stop learning. There will never be a point where the entirety of the economy can be known, and that one model may never exist to rule over all.
Final DISCLAIMER
This is in no way, shape or form, fluid and function, an analytical, qualitative or intelligent compte rendu. The function of this essay is the maddening diatribe of a curious mind, and how this one manages micro- and macro-economic data for a critical investigation into the micro- and macro-economic world. This text is not suitable for direct consumption, and should never be used as a primary or secondary source. The contents of this text are often illogical and offensive, and great care should be given to the reader's personal qualifications and senses. This text is delivered on TradingView, where the userbase is expected to have a level of financial and investigative understanding that would enable them to query appropriate thoughts and abdicate nonsense to the void. May whatever sovereign and omnipotent being you believe in, guide you through this.
This author has long held a negative view of gold, still do, too. It isn't that gold is worthless, because that's very easy to disprove. It is that gold is outside of a functioning system, it's pretty, but it's not very useful as a store of wealth. However, an analysis must be done. My next series of ideas are small scopes of the bigger Gold picture, which is really a wealth picture, not a specific asset. The design of these pieces are to serve as a developmental method for my own thoughts, as well as a junction for you, the reader, to help. I would love any input, thoughts, contrarian bits, whatever you want, because the point is to learn. This author tries to be thorough, so expect quite a lot of data, much of it conflicting on any specific formal view.
Acronyms!
The following charts have the following data lines to compare:
SPX - S&P500
NDQ - Nasdaq 100
DJI - Dow Jones Industrial Average
DXY - US Dollar Index- compared to broad range of global currencies
TLT - iShares 20 yr Treasury Bond ETF
VYM - Vanguard High dividend yield ETF
CNYUSD - Chinese Yuan to US Dollar
WTI - West Texas Crude Oil
MABMM301USM1895 - M3 Monetary pool, aka all the dollars
USCSHPI - US Case Shiller Index - Housing price average - does not have any formal striation via regional demand, i.e. rural vs suburb
Thesis- Segment 1 - General Relativistic Performances of Asset Classes
This analytical piece serves as a subsection of a greater look at Gold, specifically at it's relative performance to other asset classes. Any introduction must come with an explanation of the cornerstone of the current working global economy: The Dollar is the World Reserve Currency. This is by mutual agreement via global use, not simply dictated by the President of the United States to unwilling nations. If country X with currency X, wants to buy something from country Y with currency Y, they can maintain a trade with each other's currencies via a ratio of X:Y. However, for most countries, this is not a simple task. If Country X and Country Y are limited in relations, especially local currency-designated economic relations, then a ratio of X:Y is difficult to negotiate. Many countries do not have the Central Bank infrastructure, or any bank infrastructure, to settle such a trade, or manage the relative values of it's own currency. While US agencies, such as the Treasury, Office of the Comptroller of Currency, and Federal Reserve, are only one side of this constantly evolving currency marketplace, it is a designated-heavy hand in those discussions. Contrary to algorithmic limitations in cryptocurrencies, real world currencies rely on fluctuating value to ensure global growth. The basic concept is should any country decide to leave the world stage and pursue aggressive policies against other sovereign states, the world can come together and limit economic degradation, i.e. currencies of countries unwilling to cooperate with each other are punished and removed from the greater economic weave. Given the natural prime directive of global growth, it is necessary and right to pursue a compatible framework of relative strength in global currencies. By accepting the Dollar as the World Reserve Currency, all other sovereign states are subject to these rules. Compared to an environment of hard asset backing, i.e. Gold, the wealthiest country is the one with the most of a specific asset, and any country attempting to increase in wealth, must pursue an economic regime of obtaining that asset. Furthermore, trading Gold requires physical settlement, which complicates and punishes international trade. Giving all the gold to one member to manage would repeat the WWII-driven event leading to the Dollar's rise as the World Reserve Currency, where the US took all European allies' gold reserves to protect them from war, and then mismanaged it all. Given that the primary objective for an individual investor is to increase the quantity of wealth, a simple question is formed:
Is Gold going to go up?
Dissecting the dotcom bubble to it's simplest definable period, i.e. the rise and fall, the oddest champion emerges. Sure, in a Dollar denominated system, the Dollar is designed to be the champion. Still, there were plenty of points where medium term price differentials presented relative buying and selling opportunities for one asset class over the other. But to the coma patient, or poor sap with a retirement, the Dollar alone held it's value best. An abiding quant might illustrate a matrix showing a model based on relative asset growth and inflation might lead to positive long-term gains in a high degree with limited management. This author is not. If there is one thing this analysis has elucidated, it is that relying on historical precedent for optimal outcomes is a sure-fire way to miss important wealth modulating factors. In the simplest form, this game is meant to be dirty. A fractal is only as good as it's similarity in system properties.
Breaking the Global Financial crisis into another period yields a different result. Gold was the champion risk asset during the run up, fall, and for gold- run up again. However, gold fell. In fact gold's movement was highly uncorrelated with risk on OR risk off moves. Long bonds didn't shine until the end of the crash, and DXY didn't start to really go up until everything else went down. Housing crashed, as a big chunk of modern economists still debate the exact causes of the GFC, with many believing it was a bubble in housing that popped it all. For the reader old enough to have been an investor, or just about anyone paying attention, but not managing, their retirement, this period was awful. Stocks heavy in retail flows, those geared for retirement accounts, such as the Vanguard high dividend ETF (and many others) saw poor performance throughout the GFC, backing up the claim that the "simplest" way to accrue wealth is to join the majority. Gold's relative strength to other risk asset classes holds up nicely, and it's rise post has many possible reasons. The simplest is the monetary growth supply relative to the rise in China's economy - China was a major benefactor post-GFC with China's real estate forming the bedrock of the Global Bull thesis argument that came after. The US response to the GFC was to bail out the banks and financial infrastructure underlying the American, and global, economy. The difference between now and then, as Gold certainly did not gain the same impetus after the COVID-19 crash, is a major overhaul in the assets banks may hold as reserves, forcing US and EU debt-collateral into their hands over others. This isn't to say that gold wouldn't see an inflationary impulse in the event of M3 growth, but that it would need to come from other capital sources.
In the decade of the GFC and post, the total US Money supply increased by over 100%. Only 3 assets had greater gains in that period: Gold, Nasdaq, and the S&P500. Gold outperformed in various segments, and barring causation, a clear correlation between gold's fall and more broad market risk assets rise is uncovered. The patterns over the last few decades, in combination with the evolving financial landscape and investment vehicles, creates a conflicting story. In some market disturbances, Gold wins, and in others it loses. Gold is an evolving risk asset class. Nasdaq's resurgence over other equity-risk assets mimic the past, primarily because NASDAQ is a small-cluster high-inflow asset designed around "high-growth" companies. Dow Jones is a group of 30, but is weighted across a mix of companies thought to be relatively stable. However, it is clear stability is a relative construct to risk, and risk is volatility. Thus, equities present themselves as multiple flavours of the same asset class, but a true striation along sector yields a very different story. As such, any model attempting to find correlations across changing groups of low-generality suffers from major limitations.
Believing gold is going to go up is tantamount to believing in hyperinflation, not in any singular or group of sectors, but in the devaluation of the dollar itself. Barring fees, thinking $100 of gold now is going to be worth $150 later, is claiming a 50% devaluation of the dollar over gold. It is more than possible for the Dollar and Gold to raise together - for TradingView please see future pieces as Idea functionality limits long-form analysis. The issue with using correlations to suggest causation, and directionality, is that nothing is in a vacuum. The geopolitical and macro-economic differences between 1999, 2008 and 2021 are vast. Attempts to use previous relationships, even if all possible relationships are accounted for, assumes that the system has an integrated reversion-to-mean function; that the world will always go back to a previous vector. As of the latest data, direct relationships to the past are difficult to draw. A simple comparison between M3 and Gold across various asset inflationary periods might dictate a hypothesis of slow growth for gold over the next few years. A more theoretical economist might pull out supply-demand curves, Central bank reserves, corporate treasuries, etc., and show that Gold is about to undergo hyperinflationary growth due to the possibility of hyperinflationary currency battles over the next 5-10 year span. While still, a recessionary model might even suggest Gold has some value to shed.
The goal of these analyses is not to offer finality, because finality can never be reached. The economy is a living breathing system because it is a system of living breathing creatures. This sub-analysis' scope is limited towards relative asset performance, while the larger analysis will try to weave everything together to create a more thorough, but much larger picture. If there is one lesson to be learned from an expansive analysis of relative asset performances, it is that it is never okay to stop learning. There will never be a point where the entirety of the economy can be known, and that one model may never exist to rule over all.
Final DISCLAIMER
This is in no way, shape or form, fluid and function, an analytical, qualitative or intelligent compte rendu. The function of this essay is the maddening diatribe of a curious mind, and how this one manages micro- and macro-economic data for a critical investigation into the micro- and macro-economic world. This text is not suitable for direct consumption, and should never be used as a primary or secondary source. The contents of this text are often illogical and offensive, and great care should be given to the reader's personal qualifications and senses. This text is delivered on TradingView, where the userbase is expected to have a level of financial and investigative understanding that would enable them to query appropriate thoughts and abdicate nonsense to the void. May whatever sovereign and omnipotent being you believe in, guide you through this.
