Over the past 100 years there has been a correlation between major equity bear markets, adjustments in one of the four “prices of money,” and gold bull markets. If we let history be our guide, the current equity bear market is signaling a new gold bull market, supported by changes in the price of money.
One of the more intriguing financial analysts of our times is Zoltan Pozsar, Managing Director and Global Head of Short-Term Interest Rate Strategy at Credit Suisse. In his writings of the past months, one of the things that caught my attention was his framework for multiple prices of money. Remarkably, when I looked up big historical changes in the price of the US dollar, they usually succeeded equity bear markets and introduced gold bull markets. Because equities are in a bear market as we speak, we can expect a gold bull market in the years ahead, enabled by the Federal Reserve changing the price of money.
First, let’s see how changes in the price of the dollar have caused gold bull markets in the past 100 years. Then we will add the stock market.
The Four Prices of Money and Previous Gold Bull Markets
Pozsar’s money framework, which he got from his intellectual mentor Perry Mehrling, states money has four prices:
1) Par, which is the price of different types of the same money. Cash, bank deposits, and money fund shares should always trade at a one-to-one ratio.
2) Interest rates, which is the price of future money.
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