MOOSPEAK: APR18.2025
THE GOLDEN EGG
If you exited stocks for gold on January 8th as the Index Model suggested you’re sitting pretty this Easter, up to your armpits in chocolate bunnies, or more appropriately color-wise, Peeps. Either way, life is sweet. If you missed the golden boat, it’s your own fault. The Index Model is free advice for Peep’s sake. (Sorry about that.) All you have to do is read, believe and act.
I know: free advice is usually worth what you pay for it, right? Reading is the easy part. Believing and acting on the belief is tougher. That’s especially true when there’s no “The Apocalypse Is Nigh!” hard-sell headline accompanying the recommendation. The Moose is pretty low key and self-effacing.
Thing is once you get into a really good thing it’s only a matter of time before you start to wonder if you should get out. When I have a position in a single index ETF that is up 25% in less than a year, I tend to start looking for the exit. 25% is a juicy return. In my experience indices don’t usually get much better than that.
If there is an exception, however, it is gold. In 1979 gold rallied 133%. From 1972-74 it rallied 49%, 73% and 67% per year. In 2024 and Q1’25 it is up 27% per year and very few people noticed. Such was the focus on stocks. The Biden inflation drove gold up 66% in the last 2 1/4 years, great news for us gold bugs. More disconcerting, however, is the knowledge that when an asset turns, it usually comes down a lot faster than it went up.
For example, Gold is currently overbought and due for a pullback. It has had a big move in 2025 so far—so big that it could correct 10% or so and still be at or above its 50-day support. And it could correct in a week. Suddenly that 25% gain is down to 15% and you aren’t nearly as smart as you thought you were.
Don’t get me wrong. 25% a year is a nice problem to have, but how do you know when it’s time to make a move? It isn’t enough to merely consider the asset you’re looking to ditch. You also have to consider where your money is going. US growth stocks have been the most profitable investment choice that we follow for the last 5 years, but things have changed. US stocks are running behind gold and foreign equities at the moment.
Gold has hit a new high in five of the last six weeks. It has been overbought at various times in February, March, and April as the US Dollar extended its momentum to the downside in 2025. Recent weakness in bond prices has also contributed to gold’s competitive position as a safe haven. Inflation fear, geopolitical tensions, and a sense of major disruption in the way the US government does things (aka, tariffs, DOGE) are all supporting the flight to gold.
Meanwhile, consistent central bank purchases and Chinese consumer buying continue to put a floor under gold. With current US fiscal spending patterns swelling the Federal deficit by $2T a year, it remains to be seen if the new Congress and the Department of Government Efficiency can cut US spending and reduce inflationary pressure. If not, gold’s supremacy will have legs.
The primary threats to bullion are (1) an equity market meltdown and margin calls that require investors to sell their best performers to cover, and (2) a possible global recession caused by a trade war devolving from the new US tariff regimen. Both threats look unlikely at the moment.
The charts seem to indicate that we’ve seen a bottom in equities and that we’re making a V-bottom in the strongest charts (Europe and Japan). US stocks and bonds are bearish, and volatility is high, but there is no “blood in the streets”. After five weeks of tariff drama, hard hit China (FXI) is only down 16%. US large caps (SPY) are 14% off all-time highs, while Europe (IEV) is off 4%, and Japan (EWJ) is down 5%. If stocks portend global recessions this one doesn’t look that scary—so far.