Tracking Crisis with Stocks/Gold RatioGold Surges with Three Major Crises
Over the past 25 years, we have witnessed three significant financial crises: the Dot-Com Bubble, the 2008 Financial Crisis, and the recent 9% inflation crisis. In each of these events, a distinct pattern emerged—gold surged before the crisis reached its full intensity.
Historically, gold's price has experienced notable gains before economic downturns:
• Dot-Com Bubble: +34% surge
• 2008 Financial Crisis: +89% surge
• Inflation Crisis (2022): +24% surge
Currently, gold has surged 83% from its trough in November 2022. Given this historical correlation, could we be on the verge of another financial crisis?
Why Are Central Banks Stockpiling Gold?
This current gold rally bears similarities to past surges but also has a crucial distinction. While demand for gold remains strong, this time around, central banks are leading the charge in purchasing gold at an unprecedented rate since 2022.
Gold serves a dual function:
1. Inflation Hedge – A safeguard against inflation.
2. Currency Hedge – Protection against currency devaluation.
Central banks' aggressive gold acquisitions suggest expectations of prolonged inflation and currency instability. As fiat currencies weaken, inflationary pressures mount, reinforcing gold’s attractiveness as a safe haven asset.
Fundamental Indicators Paint a Cautionary Picture
A deeper dive into key economic indicators suggests a challenging outlook. Here are some red flags:
• Treasury Bonds in a Downtrend – Indicating a loss of confidence in long-term debt
securities.
• Interest Rates Remain High – Despite inflation cooling from 9% to 3%, borrowing
costs remain significantly higher than pre-2022 levels. Elevated interest rates place
pressure on businesses and, eventually, stock prices.
• Inflation Remains Stubborn – The lowest recorded inflation since the peak was 2.4%,
but it has now ticked back up to 3%. With ongoing tariff escalations, inflation could
reignite.
These fundamental factors indicate that financial markets remain vulnerable to shocks, reinforcing the case for cautious positioning.
The Technical Outlook: A Bullish Trend Still Holds
Despite fundamental concerns, technical analysis suggests that the current AI-driven market rally, which began after the introduction of ChatGPT, remains intact. A strong uptrend line connecting all major troughs continues to act as a support level.
Timing the Bear with the Crisis
The bond market is already signaling distress. If equity markets break below this well-established uptrend line, my strategy will shift dramatically. Instead of looking for buying opportunities on dips, I will pivot to selling on strengths, anticipating a market downturn.
My Trading Strategy: Still Buying on Dips
I have provided a daily chart with updated trendlines, marking key support and resistance levels. My trading approach will be guided by these levels to manage risk effectively.
Preferred Instruments: Outright futures and call options.
Market Outlook: Cautiously bullish.
While economic conditions warrant vigilance, technical indicators suggest that the bullish trend remains intact—until proven otherwise. Happy trading!
Please see the following disclaimer and information that you may find useful:
E-mini Nasdaq Futures & Options
Ticker: NQ
Minimum fluctuation:
0.25 index points = $5.00
Micro E-mini Nasdaq Futures & Options
Ticker: MNQ
Minimum fluctuation:
0.25 index points = $0.50
Disclaimer:
• What presented here is not a recommendation, please consult your licensed broker.
• My mission is to create lateral thinking skills for every investor and trader, knowing when to take a calculated risk with market uncertainty and a bolder risk when opportunity arises.
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CME Real-time Market Data help identify trading set-ups in real-time and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
