Gold Is Down 29%. In 1974, That Was The Signal

[00:00:00]Gold, 29%.

[00:00:03]This is how far gold has fallen from its record high.

[00:00:08]On January 28th of this year, gold printed $5,589 an ounce. And if you've been anywhere near financial media in the last few weeks, you already know the story that's been told about that number. The gold trade is over.

[00:00:26]The bubble has popped. The people who bought at 5,000 were the greater fools, and the smart money left the building in February. In this video, I want to show you one chart. It's a chart that is pulled from StockCharts, and it's honestly one of the most useful pictures of this market that I've seen all year, because it is not making an argument.

[00:00:49]It is just showing you what happened.

[00:00:51]And what it shows is that we have been here before.

[00:00:55]Almost exactly here, 52 years ago, in a market that looks so much like this one, that when you put the two lines on top of each other, it is uncomfortable. In that market, everybody who saw that this exact point, this exact percentage down, this exact month on the calendar, missed the single greatest run in the history of the metal.

[00:01:22]I'm not here to tell you what's going on and and what's going to happen.

[00:01:26]I want I want to be very clear about that from from the first minute, but I'm here to tell you that the story being told to you right now, and that it is over, is the same story that was being sold 1970 in in in 1976.

[00:01:43]And it was wrong then, and it is a way that cost people a fortune. Let's take a look at the chart.

[00:01:52]So, this chart has two panel. And before we go anywhere, I need you to understand what each one is because the one on top confuses almost everybody the first time they see it.

[00:02:02]The bottom panel is easy. It's just the price of gold.

[00:02:07]Right? In dollar going back to uh 1978, uh nothing clever.

[00:02:13]That's the number you see on the news.

[00:02:14]The top panel is interesting one. That's gold divided by S&P 500.

[00:02:22]And now the second I see the word divided, half of you reach for the skip button. So, let me explain. If the way I explain it, I would Let me Let me explain it very easily, right?

[00:02:34]Forget dollars for a second. Pretend dollars don't exist. Just ask yourself one question. If I sell 1 oz of gold today, how much of the American stock market can I buy with the proceeds?

[00:02:45]That's it. That's the whole chart.

[00:02:47]That's the line. When that line goes up, gold is winning. Your ounce buys more stock market this month than it did last month.

[00:02:58]And when that line goes down, stocks are winning. You Your ounce buys less.

[00:03:03]And here's what matters more than the dollar price. The dollar is a moving target. It gets stronger. It gets weaker. Inflation eats it. The Fed messes up with it. If you only ever look at gold in dollars, you're measuring one thing that moves with one with another thing that moves, and you can fool yourself badly. This ratio takes the dollar out of the picture completely.

[00:03:29]It's just a scoreboard. Gold on one side and the entire stock market on the other. And it tells you something the dollar price can't. Which side of your portfolio is actually doing the work.

[00:03:44]I mean, let me give you today's numbers so you have it. Gold is around $3,009 to $4,000. The S&P is getting close to 500 uh the S&P 500 close to that 7,400 or something.

[00:04:01]You do your one over by the other, you get 0.53.

[00:04:05]0.53 Hold that number. We're going to come back to it.

[00:04:09]This is what the top panel rebuilt clean so you can actually see it.

[00:04:16]Right? Same data real prices going back 58 years right up to two days close.

[00:04:22]Now look at the two yellow boxes.

[00:04:25]Because in 58 years of history through the 70s, through Volcker, through Black Monday, through the dot-com bust, through 2008, through COVID, this line has only gone truly vertical twice.

[00:04:39]The first box is 1971 to 1975.

[00:04:47]In that window 1 oz of gold went from buying a small slice of the stock market to buying more than seven times as much.

[00:04:57]The chart labels it 712%.

[00:05:02]712% not the gold price, the ratio. Gold didn't just beat stock in that window.

[00:05:09]Gold humiliated stocks.

[00:05:12]And then look what happens right after.

[00:05:14]That number in red minus 65%.

[00:05:19]The line falls off a cliff. Everything gold had won against stocks over 4 years, 2/3 of it added straight back in about 12 months.

[00:05:30]Now look [snorts] at the right side of the chart. The second yellow box. It starts in 2024 and the label says 98%.

[00:05:42]In roughly 2 years, 1 oz of gold, right?

[00:05:45]1 oz of gold went from buying about 0.4 the index to buying about 0.8.

[00:05:53]It doubled. You know, 98%. Against the strongest, most relentless was AI-fueled bull market in American stock history, gold doubled.

[00:06:04]This is the only other time in 58 years this line has gone the way it did.

[00:06:12]In the early '70s, it did the same thing. And now, the red dot.

[00:06:17]0.53, that's today.

[00:06:20]Today is where the line sits as I'm speaking to you. From the peak of about 0.8, this ratio has fallen 34%.

[00:06:31]Remember what the first box did after its run.

[00:06:37]-65%.

[00:06:39]We are -34.

[00:06:43]Sit with that for a second because we're going to build most of the next 15 minutes on this.

[00:06:49]The same story in dollars. Same two windows. Now, we're looking at the gold price itself.

[00:06:57]So, you can see what's going on underneath. The first box, 19 '71 to '74, gold went from about $37 an ounce to 195.

[00:07:09]The chart says 420%.

[00:07:14]And I could give you 30 seconds of history here because without it, none of this makes sense. Because in in in in 1971, the price of gold wasn't really a price, it was a promise.

[00:07:24]$35 an ounce.

[00:07:26]Fixed by the US government, and any foreign government could show up with dollars and swap them up for metal at that rate. That was the deal that held the whole world money together.

[00:07:38]In August of 1971, Nixon, President Nixon, canceled the deal, closed the window.

[00:07:46]And for the first time in modern history, the world had to figure out what an ounce of gold was actually worth when nobody was pinning it down.

[00:08:00]You know, it turned out that the answer was a lot more than $35.

[00:08:06]That 420% wasn't a mania, it was the world doing math it hadn't been allowed to do.

[00:08:15]Then, December 19th, '74, $195 top, and gold falls 45%.

[00:08:26]Down to around $103 by the summer of '76.

[00:08:30]Now, the second box, 2024 to 2026, the chart says, you know, 189% running into that record of 5,000. And there's a red dot again, 3,984.

[00:08:47]Basically, we actually printed a low of 3,942, which is 29 and 1/2% down.

[00:08:55]So, look at the the shape of both of both boxes, and tell me they're different. A violent repricing, a record, and then a shakeout that makes everybody who arrived late question their entire life.

[00:09:09]This is not a pattern I invented, that's just what the chart says.

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[00:10:08]Let's take a look at the shakeout everyone called the end.

[00:10:14]Right? This is the one that if you remember one image, this is the one.

[00:10:21]Um, so what this is what we've done.

[00:10:23]I've taken both peaks, December 1974 and January 20 26 and I've stacked them on top of each other.

[00:10:32]Both lines starts at zero.

[00:10:36]Uh, on the day gold set this record, left to right is months since the top and up and down in percentage from the top.

[00:10:43]The blue line is 1974.

[00:10:48]You see what it's doing? The gold line and it is right is right now.

[00:10:55]And look at where the red dot is.

[00:10:58]Month 5.4, down 29%.

[00:11:03]Now trace the blue line to that same spot. Month five in 1975, gold was down about 15%.

[00:11:14]So let's be honest here, what is this actually saying because I could easily spin this, but I'm not going to. We have falling harder and faster than 1974.

[00:11:24]At month five, this decline in roughly twice as deep as the one was the other one was. If you came here for me to tell you this is identical and everything is fine, this is not identical and I don't think everything is fine, but follow the blue line further to the right.

[00:11:41]Because that's the part nobody puts on a chart. The 1974 decline kept going and going for 12 months, 47% all the way down to $103 in August of 1976, 12 month.

[00:11:56]Think about what 20 month of that does to a person. That is not a crash. A crash is over quickly.

[00:12:04]That's a slow grinding month after month erosion where every single bounce falls and every single month you are a little poorer.

[00:12:15]By the summer of 1976, the obituaries were written.

[00:12:21]The consensus was not gold is a correction. They said gold was a fad, it's finished and it's dead.

[00:12:28]And look at what the blue line does.

[00:12:33]From that point on, gold went to $850 an ounce in January of 1980.

[00:12:42]41 months.

[00:12:44]775% off the bottom.

[00:12:50]Not even 775 today or off the bottom.

[00:12:52]From the high, from that $195 peak everyone thought was a ceiling, gold went up 336% higher.

[00:13:03]Everyone who sold in the summer of 1976 sold to escape a 47% loss and in doing that, they gave away an eightfold gain.

[00:13:14]Here's the difference. If you want to actually take away from this section between December '74 and August '76, the reason to own gold never changed.

[00:13:24]Inflation was still there. The dollar was still losing value. The Fed was still behind.

[00:13:30]Nothing about the argument broke. The only thing that broke was people's patience.

[00:13:35]So, what am I actually doing here? Well, I'm just showing you to look at 1974 and see what happened.

[00:13:40]And look where we are now and what what's going to happen next. And And you're going to see the conditions when we talk about what's going on right now with gold. Uh the idea that nobody wants to own gold because uh rates are going to go higher.

[00:13:55]Uh nobody wants to own gold because quite frankly, we don't understand what happened. I mean, the war started and the gold was gold was supposed to go up.

[00:14:02]It wasn't supposed to go down.

[00:14:05]Last year with the cut interest rates and um the um the the central banks basically bought gold, so that propped it up.

[00:14:17]And And they're still buying gold, by the way.

[00:14:20]But yet, people sold. More people sold than people bought.

[00:14:25]We've been there before. What's going on? Let's see what's going on.

[00:14:29]Let's take a look at every gold drawdown since uh 1971.

[00:14:40]Okay.

[00:14:41]And this is every major gold drawdown since 1971. And this comes from a piece of research DSP put out this month and I thought was excellent because instead of arguing, they just counted.

[00:14:54]1980.

[00:14:56]That one's the monster.

[00:14:58]That's the top one. 71%. And here's the part that should genuinely scare you. It took nearly 20 years to find a durable bottom and 28 years after that to make a new high. If you bought gold in January 1980, you were underwater until roughly 2008.

[00:15:20]That's a real thing that happened to real people and I'm not going to pretend otherwise.

[00:15:25]Then you've got 2011, the second ball.

[00:15:29]45% 1974 35% 2008 in the financial crisis 33% and today 29% second shallowest on the board.

[00:15:42]So, the honest caveat and DSP says this themselves, this one is still running.

[00:15:47]It could be worse. You know, nobody can tell you the how low this is uh including me and if anyone tells you they know then you should close the tab, but that's not what this chart is for.

[00:15:58]What this chart is for is calibration because when you inside a 29% decline it feels like the biggest thing that you've ever happened. And almost and and against 55 years of actual history, it is a Tuesday. Gold does this. Gold has always done this, you know, owning gold means agreeing to occasionally lose a third of it and not do anything stupid about it. Then by the way, silver had it far worse. Silver peaked at $121 uh in in January and got down to 5560.

[00:16:37]That's 54%.

[00:16:39]If you own silver, you already know that.

[00:16:42]And you have my sympathy.

[00:16:43]So, the question is you know, why?

[00:16:48]What happened?

[00:16:50]Well, look at the left panel. Look at the left panel. This is inflation this year. Watch what it does. 3% in January, then it climbs.

[00:16:57]You know, 31 34, right? And then eventually because of war in the Middle East put a rocket under energy prices.

[00:17:03]And then look at what happened in June release three days ago on June on June 14th 3.5%.

[00:17:10]So, the forecast was 3.8. It came down at 3.5 on the month price actually fell 4/10 of 1%. That is the biggest single month drop in American consumer prices since April 2020 when the entire country was locked in its house.

[00:17:27]And core inflation, that is inflation with food stripped, right?

[00:17:32]That number actually fall as well but came flat on the month, 2.6% for the year.

[00:17:39]Everyone expected 2.9, so hold on.

[00:17:42]Inflation just came in cooler than everyone expected. Isn't gold supposed to love that? No.

[00:17:50]That is the thing most people get backward.

[00:17:54]Because if you understand this one idea, you'll understand gold better.

[00:17:59]Look at the four bars. Gold does not care about inflation.

[00:18:05]Gold care about what is called the real yield.

[00:18:10]And and I'll explain exactly what that means. You can lend the American government money for 10 years. Today's that pays you 4.

[00:18:22]4.6% but inflation is eating your money at the same time.

[00:18:27]So, the question that actually matters is after inflation takes it out, what are you actually left with?

[00:18:35]The market prices that directly, right? It's the 10-year tips yield and as of yesterday, it's 2.31%.

[00:18:45]2.31% real guaranteed after inflation from the government. Now, how much does gold pay you? Nothing, zero. Gold pays no interest, no dividend and in fact, you pay to store it, to insure it. So, when save boring government guaranteed money pays you 2.31% after inflation, holding gold is expensive.

[00:19:07]Not in the sense that it costs you money, in the sense that it costs you the 2.3 that you could have had every year you hold it, you're paying for that. That's it. That's the whole bear case for golden one number. It's not the bubble, it's the real yield. And that's why I'm telling you this instead of just complaining about it because it worked both ways. That 2.31% is a headwind.

[00:19:31]But headwinds are not walls, they're weather and weather changes. So, if June's inflation number is a start of something instead of a fluke, that real yields come down.

[00:19:45]Right? And every single month it comes down, the cost of holding gold falls.

[00:19:52]That is the exact domino that fell in 1976.

[00:19:56]Nothing dramatic happened, no announcement. The math just quietly stopped working against gold. And then it started working for it.

[00:20:07]And by the time almost no one noticed, gold had already doubled.

[00:20:11]So, the number to watch is not the gold price.

[00:20:14]It's that 2.31%.

[00:20:19]The real yield.

[00:20:22]The yield that the government is paying minus inflation.

[00:20:29]You're competing against this.

[00:20:32]Right?

[00:20:33]So, if that yield drops, you're doing great.

[00:20:40]If inflation drops, you're not doing so great. Right?

[00:20:47]It's the yield It's the yield that you're competing with.

[00:20:53]So, what I've got What I came after the 1976 funeral? Well, the red box is 20-month long.

[00:21:03]Right? Inside that box, gold went from $195 to $100 uh and three. Inside that box, if you bought gold at the top, you'll watch roughly half your money evaporate over almost two years.

[00:21:19]And the thing is, the case was still true the entire time. Inflation was still eating the dollar. The government was still spending money it didn't have.

[00:21:28]The Fed was still in Ronald Ronald Reagan's later phase doing half measures.

[00:21:36]It doesn't matter for 20 months. That's the lesson. Being right and being early took absolutely identical from the inside.

[00:21:45]So, let's bring it back where we started, right? Mhm? 29%. That's the number that's frightening people this week.

[00:21:53]And the chart says in in in 58 years gold has done this to its owners over and over. It did minus 45 in '74, minus 33 in eight, you know, minus 45 in 2011.

[00:22:08]Right? 29% on the historical record is an ordinary event that feels extraordinary because it's happening to you.

[00:22:15]The one time in history the ratio ran like it's just run, it gave back 65% and everyone declared it finished.

[00:22:24]This time the metal has something it did not have in 1976. It had the world's central banks on the bid. 850 tons a year, indifferent to the price. It has government debt at over 120% of the economy instead of 35% and it has just passed the US Treasury as the largest reserve asset on earth for the first time in 30 years.

[00:22:48]This doesn't mean the next 6 months comfortable. It it it might get worse than this, but comfortable and correct have never been the same thing and the record is pretty clear about which one paid.

[00:23:01]So, basically, what we're saying to you is the fact that well, historically things do get worse, yes, and they have, yes, but this time is a bit different.

[00:23:14]You know, at that time there was no debt, there was no national debt, there was not huge amount of leverage, right? Inflation is going to be more or less the same story, and frankly, if you look at the trend, it's going to recover.

[00:23:27]Let's see what happens next.