Do Gold’s Historic Highs Predict a Coming Crisis?

Massive money printing and debt accumulation have gone on for something like 80 years, and the system has held together. Why should it end now? Maybe they can wring one more cycle out of the corrupt Keynesian system. That said, I think we have finally reached the actual crisis point. Although this certainly isn’t the first time the inevitable seemed imminent…—Doug Casey 

This three-part series sheds light on the multifaceted story of gold: 

Part one examines how gold price surges have predicted global crises, from the GFC to today. 

Part two analyzes the role of central banks in driving these record highs. 

Part three assesses how these highs could impact the shares of listed Philippine gold mining companies. 

In this issue

Do Gold’s Historic Highs Predict a Coming Crisis?

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

II. Gold, The Philippines and the Pandemic Recession:

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Do Gold’s Historic Highs Predict a Coming Crisis? 

First series on gold: Surging USD Gold Prices: A Predictor of Crises from GFC to Pandemic—What’s Next? 

I. Gold at All-Time Highs: A Beacon of Crisis or Recession Ahead?

Figure 1

Is the recent record-breaking streak of gold prices signaling an impending global recession or crisis? 

The relationship between gold and the US GDP has undergone a profound transformation. 

Ironically, gold’s multi-year climb began during the dotcom recession. It surged ahead of the Great Recession of 2007-2009—or 2008 Financial Crisis—and, while falling during its culmination, gained momentum once again before the climax of the Euro crisis. (Figure 1, upper and lower charts) 

Between May 2001 and September 2011, gold prices soared approximately 6.9 times, from $270 to $1,873. 

Thanks to interventions from central banks like the Federal Reserve (FED) and the European Central Bank (ECB), as well as their global counterparts, volatility subsided, and risk perception diminished, ushering in a “goldilocks” period. During this time, gold prices retraced roughly 43%, falling to $1,060 by December 2015. 

However, China’s unexpected currency devaluation in August 2015 triggered a stock market crash lasting until February 2016, further compounded by Donald Trump’s election, ignited the next leg of gold’s bull market, as investors once again sought refuge in the precious metal. 

Gold reached new heights during the US repo crisis of 2019, continuing its ascent prior to the onset of the global pandemic recession. 

It achieved an interim peak of $2,049 in August 2020, representing a remarkable 93.33% increase from its low in 2015. 

Despite the outbreak of the Russia-Ukraine war in February 2022 and peak inflation in mid-2022, gold prices slid by 20%, hitting a low of $1,628 in September 2022. 

The Bank of England’s bailout of UK pension funds during the Truss budget crisis in October 2022 provided support or put a floor under gold prices, stabilizing the market. 

More recently, geopolitical conflicts—including the Israel-Palestine war and its extension to the Israel-Hezbollah conflict—along with rising tensions in hotspots like the South China Sea, escalating global protectionism, and the increased weaponization of finance, have fueled uncertainty. 

Additionally, the re-election of Donald Trump in 2024 and his administration’s policies, including trade wars, demands for the annexation/acquisition of Greenland, and control over the Panama Canal, have added to global economic and geopolitical instability. 

The resumption of hostilities in the Middle East, particularly Israeli attacks in Gaza and Beirut following a broken ceasefire, has further destabilized the region. 

In the Russia-Ukraine conflict, the UK and France have threatened to send troops to support Kyiv, risking escalation as Trump pushes for a quick resolution with concessions to Russia.

On April 2, 2025, Trump’s administration imposed 25% tariffs on all imported cars and light trucks, effective April 3, with plans for broader “reciprocal tariffs” targeting countries like Canada, Mexico, and the EU, prompting threats of retaliation and fears of a global trade war.

Figure 2

The ongoing trade war, did not emerge in a vacuum; rather, it reflects a broader, underlying trend of deglobalization. The rising number of import curbs—spanning tariffs, antidumping duties, import quotas, and other restrictions—represents the cumulative anti-trade measures undertaken by global authorities. 

According to Global Trade Alert, the number of import curbs in force among major economies, including the U.S., EU, China, Canada, Mexico, and the rest of the G20, has surged from under 1,000 in 2008 to over 4,000 by 2024 (Biden era), with the U.S. and EU leading the increase. (Figure 2) 

This proliferation of trade barriers has not only strained economic ties but also influenced foreign relations, contributing to a slippery slope of deglobalization that has materially heightened geopolitical stress. 

For instance, the U.S.’s aggressive tariff policies have prompted retaliatory measures from trading partners, fracturing alliances and fostering and deepening a climate of mistrust, which in turn exacerbates conflicts in regions like the South China Sea and Ukraine. 

This deglobalization trend, coupled with geopolitical flashpoints, has driven investors to seek safe-haven assets like gold, pushing prices to new all-time highs, as shown in the earlier chart, where NYMEX gold futures prices have spiked since 2023 even as the U.S. nominal GDP share of global GDP remains flat. 

II. Gold, The Philippines and the Pandemic Recession

Back in February 2020, I warned: 

In an interview with Ms. Gillian Tett at Council of Foreign Relations (CFR) on October 2014, former Fed chief Alan Greenspan aptly remarked: 

Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency, where no fiat currency, including the dollar, can match it. And so that the issue is if you are looking at the question of turmoil, you’ll find as we always find in the past, it moves into the gold price. 

The bottom line: Gold's uprising against central banking fiat currencies warn that the world is in the transition of entering the eye of the financial-economic hurricane! (Prudent Investor Newsletter)

It turned out that a global recession had already begun. 

In the Philippines, the first local COVID-19 case was reported in early March 2020, prompting the Duterte administration to impose a Luzon-wide lockdown, officially termed "Enhanced Community Quarantine." 

The Philippine economy subsequently plunged into a recession, with GDP contracting from Q1 2020 to Q1 2021.

Figure 3

Gold in the priced in the Philippine peso also soared ahead of the pandemic crisis. (Figure 3) 

III. The Bigger Picture: Gold as a Recession or Crisis Bellwether 

The charts illustrate a clear pattern: since the "Fed Put" during the dotcom bubble, gold’s record-breaking runs have consistently foreshadowed major recessions, economic crises, and geopolitical upheavals. 

These include the GFC, the Eurozone debt crisis, the U.S. repo crisis, the global pandemic recession, and the recent wave of conflicts and protectionist policies. Gold has also proven responsive to the serial interventions of central banks and governments, which have deployed easy money regimes and fiscal stimulus to mitigate these crises. 

For instance, the chart highlights how gold prices dipped during periods of perceived stability (e.g., post-2011 Euro crisis) but surged ahead of crises, reflecting its role as a leading indicator of economic distress. 

Is gold’s series of epic all-time highs yet another chapter in this unfolding saga of economic and geopolitical turmoil? The historical correlation between gold price surges and impending crises suggests that investors should remain vigilant 

IV. Gold Outshines the S&P 500: Gold’s Crisis Predictive Power in Focus

Figure 4

Finally, the mainstream financial narrative often compares gold’s performance to that of the stock market, framing gold as a speculative asset. In this context, gold has significantly outperformed the U.S. S&P 500 by a substantial margin over the past century, particularly since 2000.

However, this comparison is somewhat of an apples-to-oranges exercise. Gold, as a safe-haven asset, serves a fundamentally different role than equities, which are driven by corporate earnings, economic growth, and investor sentiment.

Gold’s value is tied to its scarcity, historical role as money, and its appeal during times of uncertainty, whereas the S&P 500 reflects the performance of the U.S. economy’s largest companies.

Despite this distinction, the comparison underscores gold’s resilience and appeal in an era marked by economic and geopolitical turbulence.

For a more nuanced perspective, the chart’s lower section presents the S&P 500-to-gold ratio, which measures how many ounces of gold are needed to buy the S&P 500 index. This ratio reveals a striking technical pattern: a massive head-and-shoulders formation, a bearish indicator in technical analysis that often signals a potential reversal. 

If this pattern completes, it could indicate a significant outperformance of gold over the S&P 500 in the coming years, potentially driven by a crisis that erodes confidence in equities while boosting demand for gold. 

Given gold’s historical predictive prowess for crises, as evidenced by its price surges before major economic and geopolitical upheavals, this head-and-shoulders pattern may well be fulfilled. 

____

References 

Prudent Investor Newsletter Oh, Gold!!!! February 23, 2020

"The Fed is Done:" Asian-Pacific Currencies, Bonds and Stocks Soar!

  

Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand—Ludwig von Mises 

 

In this issue 

"The Fed is Done:" Asian-Pacific Currencies, Bonds and Stocks Soar! 

I. "The Fed is Done" Spurred a Revival of a Global Asset Mania 

II. The Plunge in the US Dollar Powered Asian Currencies and the Philippine Peso 

III. Global Risk ON: Asian Bonds Rallied, But Philippine Treasury Yields Increased  

IV. Global Stock Market Mania Spills Over to Asia-Pacific 

V. The Philippine PSEi 30’s Tepid Gains 

VI. Manic Markets Can Only Disguise Risk  

 

"The Fed is Done:" Asian-Pacific Currencies, Bonds and Stocks Soar! 

 

Sensing the comeback of the easy money regime, rampaging bulls powered a meltup in global and Asian currencies, bonds, and stocks. 

I. "The Fed is Done" Spurred a Revival of a Global Asset Mania 

The Fed is 'done,' a Bloomberg email headline noted. 

 

The Fed’s pause absent its hawkish undertones, a supply shift in US Treasuries towards T-bills, and a disappointing payroll report, among other unimpressive economic data, spurred this week's remarkable upside volatility in the US and global equity markets.   

 

Figure 1  

The S&P 500 vaulted 5.85% this week for its best showing since November 2022.   Simultaneously, the USD dollar index (DXY) plunged 1.47% while the 10-year UST yield also dived by 5.54%. (Figure 1) 

 

Or, interpreted as a crucial shift into an easing of financial conditions, US capital markets roared.    

 

The week's precipitate boom incited a massive squeeze of shorts, prompted the closures of hedged positions, and revved the trend-following momentum (FOMO). 

 

It also reveals the heft, breadth, and dominance of the US dollar standard system, projected by expectations of Fed policies transmitted into market actions, responses by global central banks, the eurodollar system and the depth of global financialization, which altogether manifests the mounting fragility from a system anchored on escalating leverage from the socialization of financial markets via central bank policies.  

 

Why, then, has the global financial community been fixated or obsessed with the Fed's policies?  

 

Figure 2 

 

And why have many global central banks been on a rate-cutting spree ahead of the FED?   Have they "defeated" inflation?  Or have their economies been in trouble? See my tweet above. (Figure 2, upper window) 

 

Though the latest numbers of central banks slashing rates are in the non-crisis range experienced in 2013-15 or still way below the spikes of the Great Financial Crisis (2008-2009) and the Pandemic recession (2020-2021), one cannot discount further rate cuts since easy money policies are the only mechanism that contemporary central bankers use to address economic downturns and financial stresses.  

 

Also, the last decade or so can't be a relevant template because it operated on a backdrop of disinflation. 

 

II. The Plunge in the US Dollar Powered Asian Currencies and the Philippine Peso 

  

As proof and in validation of our thesis that the latest BSP rate hike was about the Philippine peso, the Bank for International Settlement recently published the tools of Asian central banks. (Figure 2, graph) 

 

Facing the dual challenges of tight global financial conditions and high inflation since 2022, most Asian EMEs have raised policy rates, but more modestly than in other regions. They have also relied more on a variety of complementary policy tools (eg FX intervention and bond market intervention (BIS, November 2023) 

 

Figure 3 

 

The easing wave hit the global financial sphere; the best-performing currencies in Asia-Pacific included the Philippine peso.  (Figure 3, topmost chart)

 

Even with just two trading sessions in a holiday abbreviated week, the spread abruptly and sharply widened from the serendipitous plunge in the 10-year UST yield in the face of a jump in domestic counterpart.  (Figure 3 middle window)

 

The Philippine peso had its 5th best week since 2020 as the USDPHP plummeted (-1.5%).  (Figure 3, lowest graph)

Figure 4 

 

While the Australian and New Zealand dollar rocketed by 2.8% and 3.2%, the cliff dive of the DXY resonated not only with the USDPHP but also with USDTHB (Thai baht).  (Figure 4, upper and lower windows)

 

In any case, the week's drastic moves have yet to become decisive.  Or, the mid-term trends remain intact. 

 

Nonetheless, momentum and Friday's added decline of the DXY and 10-year US Treasury yields point to a breach below the USDPHP 56 level.  

 

One week doesn't a trend make.  Importantly, domestic fundamentals should eventually reassert their force over market impulses. 

 

III. Global Risk ON: Asian Bonds Rallied, But Philippine Treasury Yields Increased

 

Figure 5 

In the meantime, the rally of the 10-year US Treasury (declining yield) reverberated in Asia.  Except for the Philippines and Japan, yields of 10-year sovereign bonds fell.  (Figure 5, topmost pane) 

 

This week's steep volatility has barely altered the yield uptrend in most of the 10-year ASEAN bonds. (Figure 5, middle chart) 

 

In the Philippines, the weekly increases in local Treasuries—primarily on the front through the belly—flattened the curve.  (Figure 5, lowest window left) 

 

Again, as a caveat, two trading days this week translate to possible distortions as many participants may be on holiday. 

 

In addition, the re-emergence of risk-ON sent Asia's credit default swaps CDS tumbling, which implies reduced concerns over the region's credit risks.  (Figure 5, lowest graph, right) 

 

IV. Global Stock Market Mania Spills Over to Asia-Pacific 

Figure 6 

 

The Asian-Pacific region's equity markets also resonated with the sudden boom in the bond markets.   

 

Of the 19 national bellwethers, 17 closed the week higher, with an average return of 1.51%.   

Outside Pakistan, the benefits of the perceived financial easing fell on the laps Developed Asian bourses.  

 

As the IMF and Pakistan negotiated the 2nd tranche of the $3 billion package, its benchmark KSE 100 soared to an all-time high.  

 

And even as the 2nd biggest weekly gainer, New Zealand's NZ50 remained in a downtrend, while Japan's Nikkei 225 drifted on a flag formation. 

 

China's SSEC (+.43%), Indonesia's JKSE (+.44%), and the Philippine PSEi 30 (+.46%) were among the lesser recipients of the easing conditions.  

 

On the other hand, the euphoria eluded the indices of Laos (-2.58%) and Bangladesh (-.13%).  

 

V. The Philippine PSEi 30’s Tepid Gains 

 

At the PSE, the breadth was slightly positive for the broad market (200 advancers versus 144 decliners) and the main index, the PSEi 30 (18-10 and 2 unchanged). 

 

Mainboard volume jumped 24.9% (average daily) from a week ago to Php 3.59 billion.   Yet despite its increase, it has been a long-term downtrend—a reflection of the sordid state of decadent savings.  

 

The coming week should be data-heavy as authorities announce October's statistical inflation (CPI) and the national account (GDP) for the 3Q.  

 

VI. Manic Markets Can Only Disguise Risk  

 

All that said, the easing of financial conditions may goose up the global capital markets for a while. Seasonal factors may contribute to it.    

 

But a capital markets boom defeats the Fed and central bankers' goal of arresting inflation because this would result in the opposite—combust demand in the face of deglobalization and malinvestments.  

 

If markets are expecting "bad news" (slowing or recessionary economy) to transform into good news (asset boom), this could mean a "watch out below" moment. 

 

The world seems to operate in two dimensions (Duoverse).  The first thrives on a blissful oblivion (a bubble) unfazed by reality.  Or, as the preeminent statistician, author, and philosopher Nassim Taleb described, "denigration of history," where "gamblers, investors, and decision-makers feel that the sorts of things that happen to others would not necessarily happen to them." (Taleb, 2001)

 

This week's mania rekindled the hope of a credit-driven asset bubble from the crowd desperate for inflationism. 

 

The next is ground reality: mounting socio-economic strains partly vented as bellicose geopolitical relationships and its feedback mechanism on the back of unprecedented credit-financed malinvestments. 

  

Manic markets can only disguise risk but not avoid or eliminate it. It would only exacerbate financial and economic maladjustments.   

 

More than ever, risks from existing and developing imbalances should reveal themselves in the fullness of time.  

 

 

_____ 

References: 

Prudent Investor, BSP’s Off-Cycle/Emergency Hike was about Protecting Deficit Spending via the Philippine Peso October 29, 2023 

 

Pietro Patelli, Jimmy Shek and Ilhyock Shim, Lessons from recent experiences on exchange rates, capital flows and financial conditions in EMEs BIS Bulletin November 2, 2023 Bank for International Settlements 

 

Nassim Nicholas Taleb Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets, Random House Paper Back, p.26