Bloomberg Intelligence
This analysis is by Bloomberg Intelligence Senior Commodity Strategist Mike McGlone. It appeared first on the Bloomberg Terminal.
The highest month-end gold price ever vs. the Bloomberg Commodity Spot Index on May 30 might need the US stock market to decline to accelerate the trend, and the record-setting precious metal may be sniffing out the inordinate burden on the S&P 500 to maintain century-old highs vs. GDP and the rest of the world. Our 2025 bias is straightforward: If beta keeps going up, gold will face headwinds and copper may stabilize. However, crude oil’s inability to stay above its 2024 low of $65 a barrel low shows a deflation tilt.
The potential for a normal 10-20% retracement of the S&P 500’s 100% total return since 2019 could nudge gold above $3,500 an ounce. Superabundance trends in the grains suggest that a Corn Belt drought may be necessary for corn to stay above $5, with risks leaning below $4.
Gold vs. US stocks endgame
Beta may need to rise to avoid deflation; gold vs. crude, copper
Record-setting gold may contradict consensus for another up year for the US stock market. The potential for a bit of beta normalization could place 2025 in the record books alongside 1929 and 1999 in the US, and 1989 in Japan. Falling crude oil may gain commodity companions, with copper a top candidate.
The gold bull could require fuel
A lot of room for reversion may be a takeaway from the highest month-end gold price ever vs. the Bloomberg Commodity Spot Index (BCOM). The economic discombobulation implied by past spikes in the store of value vs. broad commodities is disconcerting. Prior to the gold/BCOM peak at about 300 in 2020 (from a base of 100 in 1969), the most relevant comparison was 1987. At about 313 on May 30, the gold/BCOM ratio indicates more extreme global economic distress than the onset of the pandemic and biggest money pump in history.
Our graphic shows what record-setting gold may be sniffing out — some downward reversion in the S&P 500 vs. GDP and the MSCI World Ex-US Index, from multi-decade highs. These ratios have exhibited same-chart syndrome since the financial-crisis low in 2009.
Cheap commodities vs. beta may face ebbing tide
The S&P 500 (SPX) has dropped in 1H to good support in terms of ounces of gold at 1.6x, but risks could be leaning lower. Our graphic shows a top reason why: Relative to the Bloomberg Commodity Spot Index, SPX appears in early stages of backing down from about a 25-year high. Broad commodities may have plenty of relative value potential vs. US stocks at current levels. Or is beta too stretched? Our bias is the latter, and gold’s gain of about 26% in 2025 to May 29 vs. roughly flat SPX total returns could suggest the metal agrees.
The world is facing unprecedented tariffs from the largest importer, which may be part of the reason crude oil is down about 15% this year. Stalwart CME copper’s similar gain could be a nail to beta’s hammer. Inordinate burden is how we view the S&P 500 to stay lofty to avoid deflationary dominoes.
Copper, bitcoin may succumb to ebbing tide
Rising gold vs. declining crude oil could gain momentum and attract companions, with copper as a primary candidate. Will the economically sensitive metal follow gold higher or fall with oil? This key commodities question for the rest of 2025 may augur an undue burden on the US stock market to keep going up to avoid trickle-down deflation from declining oil and iron ore, and Chinese government 30-year yields at about 1.9%. Absent a Corn Belt drought, grain prices are poised to continue falling.
The US Treasury 30-year yield peaked at 5.15% on May 22 — a few basis points from the highest since 2007 — the same day Bitcoin reached a record $112,000, which may suggest the highly volatile and speculative crypto is a top leading indicator. Our inclination is that price risks are leaning lower with unlimited cryptocurrency supply.
Beta may need to increase to avoid deflation
A top prerequisite to stop rising precious metals and most other commodities from falling may be a resilient US stock market. Gold could be anticipating the potential that the roughly 100% gain in S&P 500 Total Return Index since 2019 is ripe for reversion. If 2025 ends with about a 10% gain in beta, gold could see pressure toward $3,000 an ounce, and copper inklings to $5 a pound. It’s the potential for a 10% decline in beta that may trigger enduring deflation.
The lessons of history and deflation following inflation are playing out in China akin to Japan about 30 years ago, and rising gold vs. falling crude reflects this. If copper follows oil, driven by a bit of reversion in the highest US stock market cap vs. GDP and the rest of the world in about a century, the deflation dominoes may tumble.
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