Gold Sings A “Hot 'N Cold” Song

Although spring has begun, we can still find ourselves in winter, or even summer. Gold may benefit from such a seasonal aberration. Well, in calendar terms, it’s indeed spring, but economically speaking, it can be summer already or still the beginning of winter. How so? I refer here to Kondratiev cycles (also known as Kondratieff cycles or Kondratyev cycles).

As a reminder, Nikolai Kondratiev was a Russian economist who noted in the 1920's that capitalist economies experience long super-cycles, lasting 40-60 years (yes, it’s not a very precise concept). His idea was that capitalism was not on an inevitable path to destruction, but that it was rather sustainable and cyclical in nature.

The Kondratiev cycles, also called waves, are composed of a few phases, similar to the seasons of the year. In 2018, I defined them as follows:

  • Spring: economic upswing, technological innovation which drives productivity, low inflation, bull market in stocks, low level of confidence (winter’s legacy).
  • Summer: economic slowdowns combined with high inflation and bear market in stocks, this phase often ends in conflicts.
  • Autumn: the plateau phase characterized by speculative fever, economic growth fueled by debt, disinflation, and high level of confidence.
  • Winter: a phase when the excess capacity is reduced by deflation and economic depression, and debt is repaid or repudiated. There is often a stock market crash and high unemployment rate, social conflicts arise.

However, other economists define these phases in a slightly different manner. For them, spring is an inflationary growth phase, summer is a period of stagflation (inflationary recession ), autumn a deflationary growth period, while winter is a time of deflationary depression.

So, which phase are we in? That’s a very good question. After all, the whole concept of Kondratiev cycles is somewhat vague, so it’s not easy to be precise. But some experts believe that we are likely in the very early part of the winter after a very long autumn. Indeed, there are some important arguments supporting such a view.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does ...

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