Understanding Gold’s Long-Term Cycle
Over the last 40 years, gold has shown a repeating trend. According to a detailed chart from the Gold Market Chartbook, gold typically begins its upward movement against cash, then trends up against bonds, and finally, it starts outperforming equities (see the image below). This pattern has been seen in every major gold rally over the decades.
Past Gold Rallies and What They Show
The chart highlights strong rallies in gold during the 1970s and again from 2002 to around 2011–13. In both cases, gold started its move slowly but eventually showed massive gains. Interestingly, gold’s movement compared to equities was shorter in the 2000s rally, but it still made an impact. If the current pattern continues, we might see a similar or even bigger move in gold in the coming years.
What It Means for Equities
For the current gold-to-equity ratio to return to its earlier highs, one of three things needs to happen:
- Equities must fall,
- Gold must rise sharply,
- Or both will rise, but gold will move faster.
In any of these situations, gold is expected to perform well relative to equities. This is part of a larger cycle that seems to repeat every few decades.
A Conservative Strategy That Works
Since it’s hard to predict whether equities or gold will perform better in the short term, a balanced approach works best. Adding some gold to the portfolio acts as a hedge. If equities underperform, the gold portion — even if it’s just 20–30% — can offer stability and support. This helps improve the overall returns of the portfolio over time.
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