Precious Metals have been hit hard in recent weeks, but what is happening in the global macro world is necessary for a real bull market to begin in gold, gold stocks, and silver.
Recently, and historically, every big move in precious metals has transpired around either a significant correction or bear market in stocks.
Think of the major lows in precious metals in recent years: March 2020, August 2018, December 2015, and October 2008. Economic and market turmoil is always a catalyst for precious metals.
This time will be no different.
The biggest and best cyclical bull markets in precious metals occurred amid or after a bear market, within the context of a secular bear market in stocks. Think of the early to mid-1930s, the 1970s, and 2000 to 2011.
In recent years, the issue for precious metals was the underperformance against the stock market, which remained in a secular bull market.
However, gold is poised to begin a new secular bull market soon, as the stock market has likely started a new secular bear market.
Metrics such as CAPE, the Buffet indicator, or household assets invested in equities all argue strongly for very poor returns over the next 10 to 15 years, which will coincide with gold dramatically outperforming the stock market.
Historically, the huge moves in gold mining stocks can begin before, during, or after a bear market in stocks.
Experience shows that when a secular bear market in stocks begins, precious metals usually disconnect as they did throughout the 1970s and from 2000 through 2002.
During the 2007 to 2009 bear market, precious metals disconnected two-thirds of the way through.
In recent posts, we have established that precious metals should bottom around the time the Fed stops hiking rates, coinciding with a peak in the tightening of financial conditions.
As we've seen previously, gold can break to new highs when the Fed begins easing financial conditions. The Fed will have to ease later this year when the economy rolls over and the stock market trends towards a lower low. That is when precious metals will fully decouple.
In the short-term, precious metals, the stock market, and bonds are all quite oversold and could rally together.