The dollar reset
Since my last post, gold and silver have had major corrections, which also caused the crypto market to slide. There is speculation that this was triggered by the announcement of the new Fed Chair, Kevin Warsh. This is somewhat counterintuitive, as a more dovish approach to interest rates could cause further devaluation of the dollar and, in general, create a good environment for precious metals.
Despite the correction, I want to bring your attention to this chart.
The white line is a historical level going all the way back to the 1950s. On the SPX/GOLD chart, every time this level is crossed it has led to a recession. However, I am not predicting a recession; I just think this chart could be showing us that a real, long-overdue correction in the S&P 500 is on the horizon. To support this thesis, overlaid on the candles are the S&P 500 and the DXY, while the vertical yellow lines mark our main area of interest. These areas show a continued divergence between a falling valuation of the dollar and a rising S&P index, alongside a simultaneous outperformance of gold.
This suggests that some investors are starting to close their positions and move their money into foreign assets and precious metals. The continuous grind higher of the market is only being led by a few tech giants, as visible in the advance-decline index of the S&P. Historically, this portrays an environment where gold outperforms the S&P and the dollar heads lower, with longer consolidation.
It is also important to consider that history rhymes but does not repeat itself exactly, and today’s key factor is what’s on everyone’s mind: AI. Unfortunately, I don’t think this is something that will necessarily flip the dynamic I’ve discussed, as AI is something the whole world is chasing after, not just t