Why Gold Is a Better Bet Than Stocks for 2025
As we set our sights on 2025, there is a compelling argument for why investors should favor gold over U.S. stocks. Historical analysis of gold trends from 1980 to the present reveals several distinct bull and bear cycles. Currently, gold is experiencing a robust rally, having broken out at 2,100 in early 2024, suggesting a bullish outlook that is likely to persist into the coming years.
Historical Context of Gold Cycles
Looking back, gold peaked at 850 in early 1980, entering a bear market that found its low in 1985. Following a period of stagnation, it hit a second bottom in 1999 before beginning a recovery that peaked in 2011. In recent years, the precious metal has been tracing out saucer-shaped multi-year bases against various stock indices. Notably, while the gold/Dow ratio remains weak due to U.S. stock strength, the Gold/EAFE ratio is primed for a breakout, and the gold/emerging markets ratio has marginally broken out of a 12-year base.
A Favorable Technical Picture
Another technical reason to maintain a bullish outlook on gold is its breakout across all major currencies. The recent performance shows that gold has achieved new all-time highs even against traditionally strong currencies like the Swiss Franc (CHFUSD). Interestingly, the silver/gold ratio serves as an indicator of speculation in precious metals. The absence of a significant spike in this ratio signals that current sentiment is not positioned for a major gold peak, suggesting that further upward momentum remains possible.
Disinflation Trends and Their Implications
Gold is recognized as a vital diversifier in investment portfolios, particularly as a hedge against unexpected inflation. Recent analyses indicate that signs of disinflation are fading, with reports of October’s Consumer Price Index (CPI) figures remaining above the Federal Reserve’s target of 2%. Bloomberg columnist John Authers noted that both core services and housing support ongoing inflationary pressures. While market expectations lean towards potential rate cuts, the Fed’s recent communications suggest a more cautious approach, implying that rates may not be adjusted downward in the near term.
The Impending Economic Landscape
Political developments add another layer of unpredictability. With U.S. President-elect Donald Trump signaling intentions that may disrupt monetary policy through tariff increases and tax cuts, inflationary pressures could intensify. Even amid recent price corrections, inflation expectations, measured by the five-year breakeven rate, are on the rise, reinforcing gold’s protective capabilities against inflation.
Awaiting a Gold Correction Bottom
Tactically, investors are advised to wait for a potential bottom in gold prices. Historical data shows that gold often reaches a low point when it falls 2% below its 50-day moving average, a condition which has recently occurred. Monitoring the conditions of gold mining stocks, particularly through the VanEck Gold Miners ETF (GDX), provides additional insights into market dynamics. This ETF appears to be in a clear corrective phase and may be considered oversold, serving as a potential signal for accumulation.
The Dollar and Its Impact on Gold Prices
Furthermore, attention should be paid to the U.S. Dollar Index (DXY). The dollar’s recent rally, particularly following Trump’s election victory, shows it hitting resistance levels. If this momentum falters, it could create a tailwind for gold prices, which historically exhibit an inverse correlation with the dollar’s strength.
Conclusion: A Bright Future for Gold
The technical landscape for gold remains bright, with both a long-term bullish outlook and emerging relative breakouts against global equity markets. Inflation dynamics point towards a reacceleration that favors gold as a safe haven. Consequently, investors are encouraged to accumulate gold in anticipation of superior returns in the years ahead.
Given the increasing complexities of our economic environment, maintaining a position in gold may very well be a safeguard against volatility, outshining other asset classes such as stocks in the years to come.