Gold will surprise in this decade

The Growing Gap Between Gold and US Stocks

Over the past ten years, the U.S. stock market has seen a massive surge in its market capitalization. The Wilshire 5000, which represents the vast majority of major stocks in the U.S. market, has grown from $25 trillion to around $75 trillion. In comparison, the market cap of gold has only increased modestly from about $8 trillion to $12 trillion. This widening gap between the value of U.S. stocks and gold is significant and could signal an upcoming shift in the market.

The Cycle of Market Convergence

Historically, whenever the gap between the market cap of gold and U.S. stocks becomes too wide, the two tend to converge over time. This pattern has played out repeatedly over the last 40 to 50 years. When gold lags behind other assets in terms of market capitalization, it often catches up in the following decade. Alternatively, the stock market may experience a decline, bringing it closer to gold’s value. This cycle suggests that gold could outperform stocks in the coming years, offering a potential opportunity for investors.

Gold’s Resurgence in India

In the Indian context, gold has already started to show signs of outperformance. Despite the stock market performing well, gold has been quietly gaining strength over the past few years. After a prolonged bear market from 2011 to 2016, gold has been on an upward trajectory. The post-COVID era has further boosted gold’s performance, indicating that it may continue to rise. As other asset classes reach their peaks, gold is beginning to shine once again.

A Promising Outlook for Gold

When one asset class, such as gold, remains undervalued compared to others, the market often corrects itself. This correction leads to a reversal of trends, where the underperforming asset begins to gain value. The current market conditions suggest that gold is poised for such a reversal. As the ratio between gold and U.S. stocks starts to narrow, gold is likely to see significant gains in the coming decade.

Increasing Gold Exposure

Given the historical patterns and current market trends, it may be wise to increase your exposure to gold if you haven’t done so already. Gold has the potential to surprise many investors by outperforming other asset classes in the near future. As the market cycle continues to play out, gold could become a key player in your investment portfolio.

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