The signal is in the miners, not the metal
The biggest gold signal right now is hiding in mining stocks, not in the metal price. The miners-to-gold ratio has broken out of a 13-year base. It sits a little over 9% (mining index divided into gold) and has room to run to old resistance near 18%. There is no chart resistance until the bottom of the prior multi-decade range. That means miners could double in value against gold just to reach that next level - a huge move.
When miners beat gold, both are rising. Miners outperforming gold never happens in a falling market. So if miners double versus gold, gold itself goes up too. If gold reached a normal bull-market peak of $8,000 to $9,000 - double from here - miners would gain far more than double in actual price, because gold would be climbing at the same time. If gold had matched what Newmont (NEM) and Wheaton (WPM) just did, gold would already be at $5,600.
Newmont (NEM) and Wheaton (WPM) shot back to their highs fast. They did not return to prior highs just to form a double top, especially after crushing gold on the way up. This move does not show up in gold or silver charts, only in the relative performance - which tells you fresh asset-class money is flowing into this beaten-down sector.
Why the money is moving now
The reasons are clear: a government debt crisis unlike anything in 100 years, plus a stock market bubble in the US and Japan. Japan led the government bond crisis and has not fixed it - it keeps printing, in the prime minister's own words. The US, Europe, and the UK are in the same shape; those problems just have not hit headlines yet.
The year ahead will be explosive. Much of the gains in gold, silver, and miners over the next year will be compressed into a handful of months in the early part of the phase. We are on the edge of that now, because the spread broke out.
I called a friend - a subscriber for years and himself close to very large asset managers - and said I suspected big asset managers had started moving money into miners, since the miners-gold spread turned up and Newmont (NEM) and Wheaton (WPM) snapped back to their highs. He happened to be sitting next to a very large asset manager who heard the call and fully agreed that is what is happening. Institutional money is rotating in before mainstream investors notice. The danger for investors is waiting for headlines after the positioning has already changed.
The financial sector is breaking down
Financials are struggling, and this looks worse than 2008. Back then the debt was mostly private mortgages. Now it is government debt. There is also a private credit problem that will hit the lenders - banks and others. Credit card debt that is past due is at the same levels as 2008, and most investors ignore it.
Compare the broad stock market to Goldman Sachs (GS) or Morgan Stanley (MS) charts over recent days and the financial sector is deteriorating - not just banks, but credit card companies, broker-dealers, and other financial firms. Measure the whole sector through XLF: divide XLF by the S&P 500 and go back two decades. In 2007, before the bear market even began, that ratio started collapsing in mid-2007 - a warning that came before the mortgage and bank news broke. That spread blew through a 10-year set of lows. Right now the financial sector sits at the lows of the last couple decades, even lower than back then, and still weak.
The lesson: headline index strength can hide rotting financial plumbing underneath. You can chase AI stocks all you want, but the financial sector looks bad and will likely make headlines soon, in step with the government bond debt crisis that emerged around April but reached the financial press only recently.
Bank vulnerability is broad, not one bank. It shows up in other financial areas too. Commercial real estate looks technically very weak - ETFs like RWR and BNQ hold large property-management companies, and excess debt is choking some of these firms. That problem is not front and center yet, but when it becomes front and center, everything else will stop mattering.
Central banks are cornered
This is now the governments' own debt, so they cannot just sit and talk without being upset. Treasury Secretary Bessent says he is in charge of the situation - let him show it. About a month ago authorities intervened in the forex market to buy and support the yen, figuring that would keep Japan from dumping US bonds - a mutual deal to stop each other's houses from burning down. It did not work as hoped. The yen rallied, but Japanese bonds kept falling.
That is the key point: a currency move can succeed on paper while failing where the debt problem actually lives. Policymakers can push one market without controlling the whole system. Government debt, currencies, and private credit are tied together through the same liquidity plumbing, so watch cross-market failures rather than official reassurances.
This is unlike any stock bear market in the past 100 years. There is a factor that can move major markets in different directions at once: monetary metals up, paper assets down.
Where displaced capital goes: commodities
When money leaves the bubble part of the stock market, it does not all burn up. Most of it flows elsewhere, and some is already moving into commodities.
Commodity-related sectors do not correlate well with the stock market. Look at decades of history: XLE, the broad energy ETF, does not track big up and down moves in the S&P closely. It is common to see energy rise while stocks fall. The same is true across the commodity complex - grains, sugar, cotton, base metals, energy - and right now they are moving in harmony.
The claim that the energy rise is only about Iran is false. The oil component actually lagged the Bloomberg Commodity Index's recent upturn. A second major uptrend in the Bloomberg Commodity Index was signaled back in October, when the index was 107. It is now 146 - a big rise. For context, in 2008 it was 237, so the index is not expensive. Oil did not turn up by our metrics until the January close of this year at $65. A major oil buy signal came well before the war began, yet oil was only a lagged contributor to the rise. Grains, sugar (a big laggard that suddenly exploded in the last month or two), cotton, and copper all took part. You cannot say sugar rose because of Iran.
Large fund managers are not buying oil or grain futures directly, but they are buying related stocks. XLE and other oil ETFs, base-metal miners, and agriculture ETFs like MOO are all advancing. A cautious manager who wants out of the bloated stock market, with T-bonds no longer a safe alternative, asks the back-office technician where to go - and the answer is that the commodity complex looks good, with clean improvement in energy-versus-S&P spreads. That points to asset allocation into what looks like low-price, low-risk, high-reward, versus a stock market that now looks less rewarding and more risky. Commodities and commodity-linked stocks are a good place to be for the next couple years.
There is another reason. In a government bond crisis of this size - none like it in a century - governments do what Japan has done and what the US will do: print, print, print. To support your own bond market, the money has to come from somewhere. That expands the money supply. The M2 chart is already parabolic and will get more parabolic. That money goes somewhere, and it is beginning to go into commodities. For wealth preservation, tracking the flows matters more than following the headlines.
Aside from gold and silver miners, commodity-related stocks are among the very few good places to be in the stock market.
