Entering text into the input field will update the search result below

Gold And The Boom-Bust Cycle

Steven Saville profile picture
Steven Saville


  • The true fundamentals have been trending in a gold-bearish direction since early-October of last year, which is a large part of the reason that the gold price has been in a downward trend for the past several months.
  • Credit spreads are one useful measure of economic confidence, with widening spreads indicating falling confidence and narrowing spreads indicating rising confidence.
  • My guess is that the current boom will be short by historical standards, but there is no need to guess correctly because real-time data will provide timely warnings that the transition from boom to bust has begun.

Editor's note: Originally published at tsi-blog.com on Mar. 1, 2021

[This blog post is a modified excerpt from a commentary published at TSI on 21st February]

The true fundamentals* have been trending in a gold-bearish direction since early-October of last year, which is a large part of the reason that the gold price has been in a downward trend for the past several months. The majority of these true fundamentals are measures of confidence in the economy and/or the banking system, the theory - which is supported by decades of empirical evidence - being that gold performs relatively well in the bust phase of the boom-bust cycle and relatively poorly in the cycle's boom phase.

Just to be clear, if the US$ is weak enough, then it certainly is possible to make gains in US$ terms via being long gold during a boom, but you will do better by being long other things including industrial commodities. Hence the use, above, of the word "relatively".

Credit spreads are one useful measure of economic confidence, with widening spreads indicating falling confidence and narrowing spreads indicating rising confidence. This implies that the direction and level of credit spreads indicate whether the economy is in the boom phase or the bust phase. That's why the gold/commodity ratio generally has trended up and down with credit spreads, which is exactly what it should do.

Below is a chart that illustrates the relationship mentioned above. In this case, metals are being compared with metals by looking at how gold performed relative to industrial metals (represented by the Industrial Metals Index - GYX) during periods of widening and narrowing credit spreads.

Unfortunately, the data for the credit spread indicator used in this chart starts in 2007, so for the first eight years of the chart there is only the

This article was written by

Steven Saville profile picture
I graduated from the University of Western Australia in 1984 with a degree in electronic engineering and from 1984 until 1998 worked in the commercial construction industry as an engineer, a project manager and an operations manager. I began investing in the stock market 2 months prior to the 1987 stock market crash and thus quickly learned about the downside potential of stocks. Only slightly daunted by the rather inauspicious timing of my entry into the world of financial market investments, my interest in the stock market grew steadily over the years. In 1993, after studying the history of money, the nature of our present-day fiat monetary system and the role of banks in the creation of money, I developed an interest in gold. Another very important lesson soon followed: gold may be the ideal form of money for those who believe in free markets and a wonderful hedge against the inherent instability of the government-imposed paper currencies, but it is not always a good investment. By mid-1998 the time and money involved in my financial market research/investments had grown to the point where I was forced to make a decision: scale back on my involvement in the financial world or give up my day job. The decision was actually quite an easy one to make and so, at the beginning of 1999, I began investing/trading on a full-time basis. My major concern in deciding to pursue a career in which I devoted all of my time to my own investments was that I would miss the personal interaction that had been part and parcel of my business management career. The Speculative Investor (TSI) web site was launched in August of 1999 as a means for me to interact with the world by making my analysis/ideas available on the Internet and inviting feedback from others with similar interests. During its first 14 months of operation the TSI web site was free of charge, but due to the site's growing popularity I changed it to a subscription-based service in October of 2000. Its popularity continued to grow, although I remained -- and remain to this day -- a professional speculator who happens to write a newsletter as opposed to someone whose overriding focus is selling newsletter subscriptions. My approach is 'top down'; specifically, I first ascertain overall market trends and then use a combination of fundamental and technical analysis to find individual stocks that stand to benefit from these broad trends. This approach is based on my experience that it's an order of magnitude easier to pick a winning stock from within a market or market sector that's immersed in a long-term bullish trend than to do so against the backdrop of a bearish overall market trend. Fortunately, there's always a bull market somewhere. I've lived in Asia (Hong Kong, China and Malaysia) since 1995 and currently reside in Malaysian Borneo.

Recommended For You

Comments (13)

Chancer profile picture
@Steven Saville

Thanks for article.

" trending in a gold-bearish direction since early-October of last year, which is a large part of the reason that the gold price has been in a downward trend for the past several months."

Between 10/19/20 and 1/15/21, I accumulated a junior gold stock that is today up 44%.

My point is not re. my success, but that making good buys carefully in a declining gold price market can still have successes. I have not stopped looking for such opportunities right now and will buy now if I find what I look for.

I am pursuing 2 more targets right now that I bought small starter positions in. When price drops, I add. When price increases, I just wait.
Right now, nobody wants our bonds, so we have to buy them from ourselves LOL. This is really quite frightening.

There is no need to own gold until this money printing scheme ends. Unfortunately, when that time comes, we will be the last to know and bullion will disappear overnight.
Nortonium profile picture
@AbolishtheFed Gold is priced in dollars. If you print 25% more dollars in a year, won't that have an effect on the price of gold?

As debt rose, so did gold. In 2013 something changed


I think the banks created so many derivatives of gold to make trading profits from fees that the price discovery mechanism for actual bullion died. There are a lot of people that are invested in the price of gold, but very few actual gold owners.


The governments likes gold suppression because it makes their currencies look strong, but we know it isn’t and this imbalance will correct itself, someday.

Gold like GLD or futures is like bitcoin in that you trade it for dollar profits in an account. But bullion is not traded, bullion is held, very few people own actual bullion.

Here’s an article on silver.

ANG Traders profile picture
"Right now, nobody wants our bonds, so we have to buy them from ourselves LOL."

Bonds are NOT a form of borrowing that the monetary sovereign needs; the currency creator does not need to borrow its own creation.

Bonds are a vestigial leftover from the hard-money system. They are simply a form of "savings account" that are used in three ways
1) as an accounting of the currency created
2) as a safe place to store dollars that pays interest...and helps keep demand.
3) as a reserve drain and part of the mechanism of interest rate control.

It matters nothing that the Fed buys these "savings accounts" itself, except that it demonstrates how unnecessary the exercise is. T-securities pay interest. When the SOMA (Fed market account) holds T-securities, it receives the interest which it then gives back to the Treasury (where it came from in the first place). The Fed should simply cancel all these T-securities...like removing your appendix.
The fed has manipulated assets since the Great Depression, including and especially GLD. Of course they don’t want you to dump paper and purchase gold. Now they have the massive move of very wealthy people diversifying their millions, into digital coins, but only around 1%. All the other assets are gold real estate and paper. Do you think the fed and central banks will let Bitcoin take over the dollar and become a currency?? Think twice.
It’s going to be a digital dollar, a digital pound, Bitcoin it’s an ineficiente form of transaction, slow and complicated.
Visa makes 25,000 transactions per second, Bitcoin probably a few hundreds. Yes digital currency is the future, but not Bitcoin. Bitcoin his like a cult, a country club membership for the wealthiest. It’s going to go really high and crash like the Hindenburg in flames. Mostly Bitcoin is mined in China and Russia. LOL.
Anyway I can keep going all day, but I’m going to say, I’m not Gold Bug but I’ll tell you inflation is coming and the fed can’t hold it any longer with lies and manipulation of the markets.
Buy always more on dips, if you have some extra cash you are willing to take a loss buy Bitcoin for the time being and sell when it reach a good height and take your modest profits.
pffft. it looks like it's making a massive inverse head and shoulders on the monthly chart. buy all you can.
Is gold a buy today or a sell?
@kimbillro sell, sell, sell - the world is going to digital gold...alt-coins!
edaskew profile picture
@kimbillro $1.9T stimulus? A check in every mailbox; helicopter money for real? The White House wants $15/hr national minimum wage? Jay Powell trying to talk down inflation, while at the same time continuing to print $130B per month? People starting to balk at buying government paper? Of course gold is a buy. But no, no, disregard the fundamentals and look at your various lines on the chart, then decide what to do.
@kimbillro My opinion is Gold is a strong buy but the Bitcoin party can last longer than most people realize so having exposure to crypto is not a bad thing.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
SPDR® Gold Shares ETF
iShares Gold Trust ETF
Sprott Physical Gold Trust
abrdn Physical Gold Shares ETF
VelocityShares 3x Long Gold ETN Linked to the S&P GSCI® Gold Index ER

Related Analysis

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.