Gold is paving the way for the next secular bull

Many people are trying to explain from a short term perspective what is going on with gold and commodities. However, from a secular cycle point of view, commodities are doing what they were supposed to, and that is going down just before the beginning of a new secular bull. Investors tend to forget that commodities have been fashionable just during the current secular bear and just before that (the secular bull market from 1980s-2000s) they were the most hated assets of all.

Some important bullet points from chart 1. Gold versus Secular Cycles

1. The relationship is easy. People want gold during secular bears (some might argue risk aversion increases during this period I tend to think this is more related with the weakening of hard currencies, at the end the explanations are correlated).
2.  Gold is actually a good predictor of secular markets (if such a thing exists). The end of the secular 65-82 came just after a 54% decline in gold. The current secular bear 00-13 started with a 30 year low gold and since then the metal has returned an impressive 587% return.
3.  It seems the asset allocation is a no-brainer. Long in gold/commodities during secular bear cycles (30-47, +68%, 65-82, +1800%, 00-13, +587%). Zero commodities in your portfolio during secular bulls (47-65, 0%, 82-00, -60%).

Investors and analysts have built a very large theory that explains why after 2000 suddenly commodities became a scarce good. It would be very interesting to read also why after 1965 the same happened. My advice, every time an analyst wants to explain to you the dynamics of commodities and starts with a supply-demand exercise; please quietly remove yourself from the premises.

Finally, this secular analysis is very worrisome, since the impresive positioning of our economies (BRICS  and friends) has been sustained by a type of asset that very well could start going south for the next 17 years. The last chart shows the price of oil during the last 2 secular markets, highlighting the same point. We did not run out of oil in 2000 we just run out of confidence. And confidence definitely will build momentum during the next years.