Home / Headlines / Headlines Opinion / U.S. Stock Market Plunge Is Going to Coincide With a Spectacular Gold Rally

U.S. Stock Market Plunge Is Going to Coincide With a Spectacular Gold Rally

Last Updated September 23, 2020 2:02 PM
Chinmay Pandya
Last Updated September 23, 2020 2:02 PM
  • U.S. stocks have undergone a baffling rally over the past few weeks.
  • Meanwhile, gold prices are edging closer to all-time highs.
  • Shocking revisions in EPS estimates mean a price correction is long overdue. The coming U.S. stock market crash will coincide with a big rally in gold prices.

The U.S. stock market’s rally has been nothing short of spectacular since the crash back in March. It just wrapped up one of the best quarters in decades.  Meanwhile, gold prices remain subdued after a massive rally.

SPX price chart.
The S&P 500’s mind-bending rally. | Source: Tradingview 

Gold prices rallied but could not make a meaningful break above $1,800.

Gold price chart
Gold prices flirt with $1,800. | Source: Tradingview 

It seems the party could be coming to a screeching halt for the stock market bulls. At the same time, the case for a spectacular gold price rally and a U.S. stock market crash keeps getting stronger.

Analysts Forecast a Disasterous Q2 Earnings Season

For the second quarter, analysts have made some startling revisions to their earnings and EPS estimates.

S&P change in bottom-up EPS in Q2 2020
Q2 2020 earnings season is expected to be ugly. | Source: FactSet 

If this wasn’t bearish enough, take a look at the revisions in earnings for S&P 500:

S&P earnings growth Q2 2020
The S&P 500 is on track to report a -43.8% decline in annual earnings. | Source: FactSet 

The case for an imminent correction gets more convincing when you notice the vast distortion in Q2 EPS revisions and the soaring S&P 500.

Change in Q2 earnings per share vs change in price of S&P 500
S&P 500’s price decouples with the latest EPS revisions. | Source: FactSet 

If these hefty revisions were not enough, insiders have already started exiting U.S. stocks in anticipation of a plunge.

Sinking Stocks Will Push Gold Prices Higher

There are strong indications that the investors, both retail and professional, are switching to gold and accumulating on dips.

The gold-to-S&P-500 ratio has started to favor gold. This is a significant indication that capital is flowing out of the U.S. stocks and into gold. Fewer ounces of gold are now required to buy a share of the S&P 500.

In other words, gold prices are getting more expensive compared to the S&P 500.

Gold to S&P 500 ratio.
The gold-to-S&P-500 hits the lowest levels since 2016. | Source: Macrotrends 

Reasons Keep Piling up for Gold to Breach All-Time Highs

Historically, gold prices have piggybacked off rising economic and geopolitical turmoil.

When such uncertainties cause investors to panic, gold prices benefit.

U.S.-China tensions are escalating as Washington tends navy shifts and aircraft carriers to the South China Sea. A flare-up in tensions could jeopardize the already shaky trade deal.

The Federal Reserve’s money printer is the icing on the cake for gold bulls. If the Fed decides to create more currency units to purchase individual corporate bonds , it will be extremely bullish for bullion.

That’s because money printing will eventually cause inflation. Gold is a scarce commodity and a historical store of value. To avoid wealth erosion due to currency debasing, investors will flock to gold to preserve their wealth.

Amid all this, a pandemic is on a rampage through the U.S. population. 

The case for a spectacular gold price rally couldn’t be more persuasive.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned securities.