The Weekend Edition is pulled from the daily Stansberry Digest.
We're getting cautious again...
The S&P 500 plunged nearly 3% again on Wednesday. The latest bout of selling followed new worries about the U.S. Treasury "yield curve."
As longtime readers know, we've been keeping an eye on the yield curve for nearly two years now. And the reason is simple... Whenever the yield curve has "inverted" – that is, whenever short-term interest rates have exceeded long-term rates – bear markets and recessions have usually followed.
In recent months, we've already seen some parts of the yield curve invert. However, the most widely followed measure – the difference (or "spread") between the yields on 10-year and two-year U.S. Treasury notes – had not yet done so.
Until Wednesday, that is...
That morning, the "2-10" spread fell to as low as -0.02% before recovering slightly...
This marks the first time this spread has inverted since before the 2008-2009 financial crisis. According to history, the "clock" is now ticking.
Now, before you rush to sell all your stocks, take one more look at the chart...
The red stars indicate the last four bull market peaks in U.S. stocks. If you look closely, you'll notice that these peaks don't line up directly with each inversion. Like recessions, they tend to follow after a lag of at least several months.
For example, the last time the 2-10 spread inverted was December 27, 2005. But stocks didn't peak until nearly two years later... And the economy didn't officially fall into a recession until a couple months after that.
During the dot-com boom, the yield curve first inverted in May 1998. But again, the real trouble didn't arrive until nearly two years later.
All told, there have been seven inversion cycles since 1965. According to Canaccord Genuity analyst Tony Dwyer, a recession didn't arrive until 19 months later on average. Meanwhile, stocks have peaked roughly 18.5 months later on average... and they've gained an average of more than 21% over that time.
While bull markets have typically continued for more than a year after the yield curve inverts, there have been two notable exceptions...
In 1980, stocks peaked just two months after the yield curve inverted. And in 1973, the market actually peaked two months prior to the first inversion.
So while history suggests we should continue to give this long bull market the benefit of the doubt, we don't want to be careless.
Stay long, but hold plenty of cash and gold... If you have a large percentage of your portfolio in stocks, consider "hedging" with a few short sales or long put options... And keep a close eye on your trailing stops, just in case.
Speaking of gold, regular readers know we've been practically begging folks to buy precious metals for months...
In fact, it was a little more than a year ago that Steve told you the signs were pointing to a bottom in precious metals.
Since that notice, gold is up nearly 25%. But despite this move higher, we remain incredibly bullish on the long-term prospects for gold and silver today. As I noted in the DailyWealth Weekend Edition last week...
We've been following the big breakout in gold for months now. But this move appears to be strengthening. As you can see in the long-term chart below, gold broke out this week to a fresh six-year high above $1,500 an ounce...
This chart is bullish...
But it isn't telling the whole story. You see, it represents the price of gold only in U.S. dollars. And while gold prices are typically quoted in U.S. dollars, it's important to remember that gold is a global asset that is bought and sold around the world.
As we often say, there are two sides to every price. On the one side, you have the asset being measured... which in this case is gold. On the other, you have the unit of measurement... in this case, the U.S. dollar.
To really understand what's happening when prices move, you need to understand what's happening on both sides of the price.
For example, rising gold prices could mean that gold itself is going up in value. But it could also mean that the U.S. dollar is simply falling in value, or (as is often the case) some combination of the two.
As a result, it can often be useful to look at gold priced in other major currencies as well...
The following chart shows gold priced in euros, the most widely traded currency behind the U.S. dollar...
As you can see, the gold rally has been even stronger in euros. While gold remains about $400 below its 2012 all-time high when priced in dollars, it's just a chip shot away from a new high in Europe.
The next chart shows gold priced in Japanese yen. While it remains below the all-time high set back in 1980, it recently broke out to a fresh multidecade high...
Gold has already broken out to a new all-time high when priced in British pounds sterling...
It's also made a dramatic new high versus the Australian dollar...
And we could show you similar charts of gold priced in the Canadian dollar, the Swedish krona, the New Zealand dollar, the Mexican peso, the Norwegian krone, the Turkish lira, the Russian ruble, the Indian rupee, the Brazilian real, and the South African rand.
All told, gold has broken out to a significant new high in 13 of the world's top 20 currencies.
This is a big deal...
Gold has broken out to a multiyear high here in the U.S. But as bullish as this price action has been, it's not telling the whole story. A relatively strong U.S. dollar has concealed the true strength in gold over the past few years.
The latest rally in gold has been a global phenomenon... And that's one more indication that a new bull market is underway.
Of course, this doesn't mean gold will move in a straight line higher from here...
Even the strongest bull markets suffer periodic – and sometimes sharp – corrections. However, we'll repeat our warning from last week: If you don't yet own any precious metals, we urge you to consider taking a small initial position today.
The evidence suggests a new bull market in gold is underway... and we believe the risk of not owning any precious metals is far greater than buying before a correction.
We'll also remind you that if you're looking for more guidance in building a balanced gold and silver portfolio, you don't want to miss next week's big event...
Legendary gold stock analyst John Doody is officially joining the Stansberry Research team.
And to celebrate, John will be joining us live to share his latest thoughts on gold and silver... including the name of one little-known investment he believes could soar 500% or more in the coming months. You'll even have the chance to walk away with more than $20,000 worth of gold coins, just for showing up to this FREE event.
Click here to learn more and reserve your spot now.
Regards,
Justin Brill
Editor's note: Gold is likely in the start of a multiyear bull market. So on Wednesday, August 21, we're hosting the 2019 Gold Rush. During this free online event, you'll find out how you can take advantage of this incredible opportunity in gold... which we may never see again in our lifetimes. Reserve your spot right here.
