Is the price of gold predicting a bear market in shares?
The price of gold from August, 2020 hit about 2075.00 USD per ounce and sense then has slowly trended down sense then and the entirety of 2021. At the same time interest rates have been ticking up, the 10 year treasury has gone from about .5% to now 1.3% Today people are predicting a crash in share prices and suggesting the share markets are overvalued.
Some prognosticators are suggesting that the price of gold is in a downward trend and suggesting this will bleed into the share markets and lead to a correction in share prices or a crash. The price of gold is down about 15% sense its most recent high in August 2020.
Will we see a correction in share prices in 2021?
I don't think so, that's the short answer. While its true the markets are over priced by traditional parameters this time I believe we have a ways to go before we see a market correction in the price of shares.
I believe the reason the price of gold is correcting is because interest rates are trending up, and the reason interest rates are trending up is because the economy is reflating and causing the bond market to reprice interest rates at a higher level.
I think if we do see a correction in share prices it will come closer to Fall and if we see a slow down in economic growth then we will see shares crumble down and then see the Fed intervene in the economy visa vee lower interest rates or more likely more money printing and the Fed will put pressure on congress to do more stimulus programs to get the economy growing again.
I believe the resent stimulus program being proposed by the Biden administration will propel share prices higher and around the world share prices will rally.
I think the soonest we may see a correction is early Fall but even if we do get a correction I see the Fed intervening to bail everyone out so I will expect rising share prices from a lower level than today and then it will spill over into the price of gold.
In the end we might be witnessing the biggest bubble in modern history, and the only asset that is not really in a bubble today is gold and other commodities such as oil, silver, of course gold and maybe Bitcoin.
When we finally see pressure on the Fed to stop bailing out banks and the establishment then we will see the final crash in asset prices such as shares, gold, commodities ect and maybe even Bitcoin, until then I expect the bubble in shares to trend up with possible selloffs of 15% or less like we are seeing in gold right now.
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