Inflation is falling. So why is gold rising? And what does it mean for the real estate cycle?

Of all the investor stories out there, news about what the gold price is doing is one of the most persistent.

It’s not something I write about normally.  But I will today.

And you should know by now that I will have a unique take on it.

I want to show you why my cyclical analysis – the 18.6-year Real Estate Cycle in particular – is key to understanding what’s going on with it.

No point messing about, let’s get into it.

To some people gold is the purest form of money we have. It’s the form of money that banks should hold before they lend money to people.

It should be the money that governments hold before they get to spend.

Neither of these perspectives are correct in my view. But let’s leave that for another day.

To other people, gold is a vital hedge against inflation. This view has received a huge amount of attention in recent years as western countries have experienced high bouts of inflation.

When inflation goes up, the saying goes, you have to own gold.

Strange, then, that when inflation really picked up after the Russian invasion of Ukraine at the start of 2022, the price of gold…. fell in US dollar terms into the end of 2022.

See the chart below.

The box above relates to the year 2022. And now, when inflation is falling again, why has the gold price rallied?

What are these financial commentators all missing?

Here is where some of history’s most important cycles come into play. You need to understand them properly to understand gold.

Let’s begin with the first one: the Kondratiev Wave (named after the person who discovered it, a 1920s Russian economist by the name of Nikolai Kondratiev).

He was asked by the Russian authorities to identify when the western capitalist nations would collapse.

By focusing on a clear relationship between the peaks and troughs of the world’s most important commodities, Kondratiev was able to establish that western economies experienced their most buoyant economic highs and devastating lows within an overall 55-to-60-year commodity cycle.

And he could demonstrate this relationship going back hundreds of years. And this relationship still holds true today, almost a century after Kondratiev’s death.

As the cycle came to its peak there would be a surge in commodity prices as economic development heated up and governments around the world invested massively in infrastructure, and businesses in new technologies.

Rather like we are seeing today.

And as we are rapidly approaching the end of one of these long waves of the commodity cycle, it is a very useful lens upon which to view the current price action for gold.

Because when the cycle peaks, most commodities go up with it, including gold as we have seen in recent months.

And what has the gold price been doing lately?

Let me remind you of the more recent price action of gold in the chart below.

Above is the gold price chart on a weekly basis priced in US dollars. The price has experienced a long-drawn-out accumulation pattern which, after November 2022, began making a series of higher lows. I have marked out this rising wedge pattern on the chart above.

This shape culminated at the fourth attempt with a genuine breakout higher in March this year.

This is entirely consistent with the peaking of the commodity cycle. But is that all to say about it?

Well, not quite. You see, a commodity cycle is far more nuanced than first meets the eye.

I’ve spoken at length to you via these newsletters about the global infrastructure boom sweeping the world now. As huge amounts of credit are driven into this building boom, resource scarcity becomes an important issue.

As I said above, infrastructure booms are associated with the peaking of the commodity cycle, and to a certain extent cause it.

As market forces adjust to take this into account, certain resources most exposed to this infrastructure building trend start to rise higher very quickly. But why should gold go up?

Because believe it or not, the world’s next tallest skyscraper isn’t going to be made out of gold!

And so, this current megatrend of infrastructure building everywhere does not feed into a narrative that every commodity known to man will instantly and strongly rise in price.

Resources needed to produce high quality steel, copper wiring and plumbing, and for the smelting of aluminum; sure. Expect high demand for these and subsequent higher prices when supply can’t meet said demand.

But that leaves gold on the outside of this trend because it’s not used in infrastructure. But as the chart shows, it has breached $2500 USD an ounce and sits at an all-time new high.

So, perhaps something else is also behind the rise of gold, and by extension perhaps influenced by another different cycle?

This brings us to the next angle on gold that I can bring you, but which mainstream commentators will not: the 18-year real estate cycle.

The effect of this real estate cycle begins in a different place to gold – it starts with the US Dollar, the world’s reserve currency.

In 1972 President Richard Nixon’s decided to end gold’s role in the international financial system by suspending US dollar convertibility to gold.

Since then, we have had over half a century of currencies moving freely against one another.

That gives us three real estate cycles’ experience of how the dollar behaves over the course of the cycle. Not quite as long as the full cycle history (which goes back well over two centuries), but still enough for us to make a prediction based on a repeat of history.

The repeat I speak of is directly related to floating currencies: that’s the US dollar tendency to peak during the second half of the cycle (where we are today) and then falls relative to all the others.

Below is a weekly chart highlighting the current set-up.

The dollar peaked back in September 2022, with the dollar index now on the verge of a major breakdown below 100, though price is still just above this key level.

Recall that almost all the world’s major commodities are priced in US dollars. Look again at the first chart, see the low for gold in September 2022.

When the US dollar peaked, gold was having a low in its range of accumulation.

Another macro trend that explains both the US dollar falling, gold rising, and ultimately where we are in the current real estate cycle is US debt. Government stimulus is often a key factor that drives the second half economy into overdrive, and again, this time has not been any different so far.

In the last four years, deficit spending has increased from $23 trillion to over $35 trillion. And what are both parties contesting the upcoming November US presidential election promised voters? Yep, more spending.

This will flood the world with dollars and push down the price of the dollar relative to other currencies. And that will influence the price of commodities.

It’s a classic real estate cycle repeat. As all this comes out of the wash, the obvious question now presents. What happens next?

What else do people not understand about the future of the gold price?

Is it up from here? Or are there going to be some surprises along the way?

The only way to know for certain is to understand the 18-year cycle and to do that you need to subscribe to our unique Boom Bust Bulletin. Start your journey about learning the history and timing of the 18.6-year Real Estate Cycle via our monthly editions, designed to educate and show you the real estate cycle in action.

Despite the name it’s NOT just about real estate. It’s about the economic cycle. But it’s our unique take on it, which influences all asset classes that you could think of investing in, including gold.

As a Boom Bust Bulletin subscriber, I will show you how and why each cycle keeps repeating and therefore how you can use it to invest. In doing so, you will place yourself above 99% of all market participants.

The culmination point for all this is coming now, those who study the land markets can see it moving closer into view.

But when do the debts simply become too big to ignore? When does gold really show itself as the premium assets to own? How much longer can the commodity cycle continue for? And what is the trigger for it all to end?

The answer is when fear really does become overwhelming. That moment when it becomes obvious those in charge have no idea what to do to save things. That the problems once swept under the carpet now become almost insurmountable.

And it’s the land market, believe it or not, that is most likely to tell you when this is to occur.

Right about the time I’d suggest you were glad you had that exposure to gold!

Timing. There is no substitute.

Get your timing right now. Sign up here.