Gold Has Begun Outperforming Stocks
On Wednesday, we talked about gold as a standalone currency.
The idea here is simple. Under normal circumstances, gold is less attractive than many investments that pay dividends/yields.
However, Central Banks are now cutting interest rates into NEGATIVE territory as a way to stop the Everything Bubble from deflating.
When Central Banks cut interest rates into negative territory, those who own bonds for these countries are PAYING the country for the right to lend it money!
In this scenario, gold, which yields nothing, is WAY more attractive than both the euro and the yen – both of which have negative interest rates. Not to mention bonds that are issued in these currencies…
As a result of this, gold is beginning to break out against every major currency.
And it’s also outperforming stocks – ever since the Fed revealed that it is likely to cut interest rates this year.
Gold is Shining Brighter Than Stocks
Starting in May 2019, the Fed started hinting strongly that it would be cutting rates at some point in 2019. Ever since that time, gold has dramatically outperformed the stock market.
The chart below illustrates this point, with gold in black and the stock market in red.
This outperformance appears to be accelerating, too.
At yesterday’s meeting, the Fed failed to cut rates. But it did suggest it would be cutting them twice later this year.
The chart below indicates what happened next…
On the news, stocks (in red) rallied… but gold (in black) EXPLODED higher.
What does this mean?
The markets are beginning to understand that the Everything Bubble has burst… and Central Banks (the Fed included) will be forced to aggressively ease monetary policy to try and reflate it.
Gold is stacking up to be the currency-antidote to negative rates and negative yielding bonds.
On that note, I’ve already shown investors one way of playing this central bank screw-up – an investment that’s already up over 5% in the last three weeks.
I’m now preparing for an even more aggressive strategy to profit from the next round of central bank policies.
I’ll tell you all about it in the coming weeks, but the initial results are some of the best I’ve ever seen in my 15-year career. The last two trades were up 100% and 60% respectively… and we held both less than a week!
Editor, Money & Crisis