Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Gold Sings Hot 'N' Cold Song

By Sunshine Profits (Arkadiusz Sieron)CommoditiesApr 30, 2021 05:01PM ET
Gold Sings Hot 'N' Cold Song
By Sunshine Profits (Arkadiusz Sieron)   |  Apr 30, 2021 05:01PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Although spring has begun, we can still find ourselves in winter, or even summer. Gold may benefit from such a seasonal aberration.

In calendar terms, it’s indeed spring, but economically it can be summer already or still the beginning of winter. How so? I refer here to Kondratiev cycles (also known as Kondratieff cycles or Kondratyev cycles).

As a reminder, Nikolai Kondratiev was a Russian economist who noted in the 1920s that capitalist economies experience long super-cycles, lasting 40 to 60 years. (Yup, it’s not a very precise concept.) His idea was that capitalism was not on an inevitable path to destruction, but that it was rather sustainable and cyclical in nature. Stalin didn’t like this conclusion and ordered a prison sentence and, later, an execution for Kondratiev. And you thought that being an economist is a boring and safe profession!

The Kondratiev cycles, also called waves, are composed of a few phases, similar to the seasons of the year. In 2018, I defined them as follows:

  • Spring : Economic upswing, technological innovation that drives productivity, low inflation, bull market in stocks, low level of confidence (winter’s legacy).
  • Summer : Economic slowdowns combined with high inflation and bear market in stocks. This phase often ends in conflicts.
  • Autumn : The plateau phase characterized by speculative fever, economic growth fuelled by debt, disinflation and high level of confidence.
  • Winter : A phase when the excess capacity is reduced by deflation and economic depression, debt is repaid or repudiated. There is a stock market crash and high unemployment rate, social conflicts arise.

However, other economists define these phases in a slightly different manner. For them, spring is an inflationary growth phase, summer is a period of stagflation (inflationary recession), autumn a deflationary growth period, while winter is a time of deflationary depression.

So, which phase are we in? That’s a very good question. After all, the whole concept of Kondratiev cycles is somewhat vague, so it’s not easy to be precise. But some experts believe that we are likely in the very early part of the winter after a very long autumn. Indeed, there are some important arguments supporting such a view.

First, we have been experiencing a long period of disinflation (and later just low inflation), a decline in the bond yields, and economic growth fuelled by debt. I refer here to the time from the end of the Great Recession until the COVID-19 pandemic, but one can argue that autumn lasted since the early 1980s, when both interest rates and inflation peaked, as the chart below shows.

U.S. 10-Year Treasury Yields.
U.S. 10-Year Treasury Yields.

Second, winter is believed to be a depression phase with stock and debt markets collapsing, but with commodity prices increasing. And this is exactly what we are observing right now. I refer here to the rally in several commodity prices. This is at least partially caused by the disruption in the supply chains amid the epidemic in the U.S. and worldwide pandemic, but if the bull market in commodities sets in for good, this could be a negative harbinger for the stock market. After all, more expensive raw materials eat into corporate profits.

Third, winter is thought of as a period that tears the social fabric of society and deepens the inequalities. The data is limited, but the coronavirus crisis has been one of the most unequal in modern U.S. history, as its costs have been borne disproportionately by the poorer parts of society that have been unable to work online.

So, “winter is coming” may be a belated warning, as winter could have already begun. Later during this period, we could see bankruptcies of firms and financial institutions, and even some governments, as a delayed consequences of the coronavirus crisis. This is bad news for the whole of Westeros and its economy, but good for gold. Investors who don’t like the cold should grab a golden blanket to hedge them from the winter.

However, in 2018, I expressed the opinion that summer may come in the 2020s, as the debts are rising and the inflationary pressure is growing:

As the global economy recovered and now expands, inflation is low, while stocks still rally, we enjoy spring. This is why gold has remained in a broad sideways trend in the last few years. However, as we are on the edge of the next technological revolution, confidence is finally rising and there are worries about higher prices, and we could enter the summer phase in the not-so-distant future.

And I still believe that my opinion makes sense. Indeed, after the global financial crisis of 2007-9, we have seen several spring features: low inflation, a bull market in stocks, and a low level of confidence (after all, there was “the most hated rally in the stock market”), which was a legacy of winter, i.e., the collapse of Lehman Brothers and the following economic crisis.

And summer is generally a period of stagflation, which is exactly what I’m expecting. You see, after a strong economic recovery in the nearest quarters, the U.S. economy is likely to return to a mediocre pace of economic growth, but with much higher inflation. After all, there is strong monetary and fiscal stimulation ongoing right now, another feature of summer. Meanwhile, winter is generally a deflationary period, so the specter of inflation rather suggests that summer may be coming and investors should hedge themselves against waves of gold.

Luckily, gold offers its protection not only against winters, but also against summers. Indeed, gold performs the worst during autumns, when there is disinflation, like in the 1980s and the 1990s, and the best during winters (due to the economic crisis – remember the 2000s?) and the summers (due to high inflation – remember the 1970s?).

Gold Sings Hot 'N' Cold Song

Related Articles

Gold Sings Hot 'N' Cold Song

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
rene topeka
rene topeka Apr 30, 2021 10:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the past is the past, we are in new world, gold wouldn't wirk as the past and only bond yield count but crypto is the main threat that why gold can't run high as it should. turn off old theory old book away
Mart Bab
Rubberduck1973 Apr 30, 2021 10:45PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Propaganda for crypto. Some poor people will take it serious and be sorry 😢. Banks and other financieel institutions dont buy crypto as a hedge against economic decline. They buy Ian’s a high risk, high profitability asset. When the stock market starts going down, the first thing people will do is sell crypto and other risky assets. And by gold
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email