Welcome back to the deep dive. So you've handed
us quite a stack of sources this time detailing
one of the biggest market puzzles we've seen
in years, maybe this decade. We're talking about
this really dramatic divergence between gold
and stock performance, specifically in 2025.
Yeah, it's it's a fascinating situation. The
sources are throwing around some pretty serious
terms like bubble warnings for equities. But
here's the weird part. You've got stocks. The
S &P 500 hitting record highs. And at the exact
same time, gold is also hitting unprecedented
record highs. Assets that often move. You know,
it feels like a major historical anomaly. It's
confusing. It really is a split personality market,
you could say. So our mission today, I think,
is to get under the hood here. Let's unpack what's
really driving this extreme behavior. What's
it actually telling us about portfolio risk?
And maybe most importantly for you listening,
how do you even begin to interpret this to refine
your own strategies? OK, let's start with the
scale of it, because this isn't just gold sort
of ambling along. It's it's sprinting ahead,
even while the stock market party seems to be
going strong. The sheer outperformance of gold
in 2025. It's just stunning because it really
flies in the face of that conventional wisdom,
doesn't it? That gold only shines when stocks
are tanking. Well, that conventional wisdom,
it holds water maybe 80 % of the time, historically
speaking. But this year, no, the metal hasn't
waited for panic selling. It's surging right
alongside the equity rally. That dual track,
that's the key thing our sources are flagging,
a risk asset soaring next to a safe haven. It's
unusual. Let's put some hard numbers on it. As
of early November 2025, gold, it's blasted past
$4 ,000 an ounce, first time ever, and stocks.
The S &P 500 is firmly over the $6 ,000. 700
mark another new peak both are incredible milestones
absolutely but the year -to -date games that's
where you see the markets underlying anxiety
creeping in gold is up get this 48 percent 48
percent meanwhile the S &P 500 even with its
records is up 15 percent 15 percent is great
normally, but 48 % for gold. I mean, that's the
kind of return you usually associate with some
speculative tech stock at peak hype. For a safe
haven asset to do that suggests there's some
deep systemic fear that, well, the equity markets
are just kind of ignoring right now. Precisely.
And if you put that 48 % versus 15 % into historical
context? Well, this level of gold outperformance
makes 2025 the seventh worst relative year for
stocks compared to gold since 1973, since the
gold standard ended, basically. So it's not just
a blip. It feels like a genuine rotation is happening
or protection is just massively outpacing risk
taking. You've got this market showing both extreme
greed in stocks and frankly, extreme fear in
gold simultaneously. OK, that simultaneous greed
and fear that leads us right into these. bubble
warnings and equities. If the S &P is soaring
past 6 ,700, why are serious people ringing alarm
bells? It really boils down to valuation, specifically
the KPE ratio, cyclically adjusted price to earnings.
That's the indicator that's flashing bright red
right now. Right, the KPE ratio, sometimes called
the Shiller PE. For anyone not familiar, it's
different from your standard PE because it tries
to smooth things out, right? Yeah. It averages
earnings over the last 10 years, adjusts for
inflation to give you a sort of longer term view
of how expensive the market is. Exactly. It filters
out the short -term noise. And what the sources
are showing is that the CP ratio has been stuck
above 40 for months now. Months. You have to
ask, when's the last time we saw valuations sustained
at that kind of level? We know the answer. It
was the peak of the dot -com bubble. Late 90s,
early 2000s. That's the only real comparison.
Right. And here's a kicker, the implication.
Look, high valuations aren't automatically a
disaster if earnings growth explodes to justify
them later. But when CPE is this high, it signals
the market is basically pricing in perfection
for the next decade. Just absolute perfect execution.
So if those rosy growth forecasts stumble even
a little bit, the risk of a really nasty correction
gets amplified. It leaves portfolios that are
heavily concentrated in say, the S &P 500 index
very exposed. And we should probably add what's
driving that high HUP number right now. It's
not like the whole market is booming equally.
It's concentration, isn't it? A lot of that 15
% gain in the S &P is really down to just a handful
of mega -cap tech names. That kind of distorts
the picture for the overall market. That concentration
makes the risk even sharper. Absolutely. If those
few giants stumble, that whole 6 ,700 level could
vanish pretty quickly. So you basically got stocks
priced like it's $19 .99. But maybe with the
market structure risks, the concentration risks
of $20 .25, it's a potent mix. OK, so stocks
are flirting with maybe historical excess. But
then why is gold acting like it already sees
the train wreck coming? What's making gold surge
independently? Well, we have to step back and
think about gold's fundamental role. It's an
independent asset. In normal times, you know,
healthy economic growth, gold's correlation with
stocks is pretty weak. Maybe fluctuates between,
say, 0 .1 and naira 0 .3. They mostly just do
their own thing. But you don't own gold for the
normal times, usually. It's meant to be that
insurance policy for when things go really wrong.
Absolutely. During those prolonged nasty bear
markets or a full -blown systemic crisis, think
2008, that correlation often flipped sharply
negative, like negative 0 .5 or even lower. That
negative correlation, that's the holy grail for
diversification, right? When your stocks are
cratering, gold is often actually rising, providing
that real hedge. The fact that it's rising so
strongly now suggests Big investors are already
pricing in the need for that kind of protection.
They're getting ahead of it. Which brings us
to the institutional drivers the sources highlight.
This isn't just small retail investors getting
jittery. This is big, sticky money moving into
gold. It seems entirely strategic. Look at the
central banks. Globally, they hold something
like 51 ,000 metric tons of gold reserves. That's
a huge number. And it's not just sitting there
gathering dust. It's a core part of their strategy.
They value its diversification, its protection
against, you know, sovereign risk. 51 ,000 tons.
Yeah. And the sources are saying that in 2025,
other institutions, pension funds, sovereign
wealth funds, even big edge funds, they've significantly
upped their gold allocations too. What flipped
the switch for them this year? It looks like
a kind of dual hedge against these major macro
shifts that are underway. First, like the central
banks, they're hedging currency risk. There's
this ongoing effort by global players to reduce
their dependence on the US dollar as a sort of
sole reserve asset. They want genuine diversification
away from fiat currencies altogether. And second,
they're hedging inflation, the aftereffects of
all that monetary stimulus, high government debt
levels. It keeps raising questions about whether
inflation is really under control long term.
Gold has always been the classic hedge when faith
in fiscal or monetary policy starts to wobble.
And you see that printed and flows into gold
ETFs, for instance. It's institutional money
trying to lock in inflation protection and currency
independence at the same time. That makes sense.
They're not necessarily waiting for a crash.
They're reacting to these bigger structural shifts
already happening. OK, let's pivot to the long
view, the historical context. It helps appreciate
just how significant this moment might be. We
often forget that market leadership isn't permanent.
Yeah, it's easy to forget. We have to remember
gold bull markets often pop up during periods
of really intense uncertainty, especially around
monetary regime changes. Think about the 1970s.
That's the classic example, right? The Bretton
Woods system collapsed. You had high inflation,
oil shocks, geopolitical tension. Gold was the
undisputed king then because the very foundations
of the financial system felt shaky. And the sources
included this incredibly powerful anecdote about
asset rotation, something that frankly should
make anyone pause when they see the S &P at 6
,700. We always measure market recovery in dollars.
But if you measure in gold terms, well, the story
changes dramatically. It really highlights the
sort of tyranny of the long term, doesn't it?
After the 1929 stock market crash, the Dow Jones
Industrial Average, the symbol of American capitalism,
it took an unbelievable 30 years just to get
back to its 1929 value when measured against
gold. 30 years. Just imagine telling an investor
in, say, 1930 that they'd have to wait three
decades just to break even relative to gold.
They'd think you're crazy. That fact alone just
hammers home that asset leadership doesn't just
rotate. It can stay rotated for a generation
or more. And that kind of perspective really
puts this year's 15 percent S &P gain versus
48 percent for gold into sharp relief, doesn't
it? It suggests maybe what we're seeing isn't
just a tactical adjustment, but potentially the
early innings of a really significant structural
regime shift in asset leadership. So, OK, let's
pull it together. We've got the historical parallels.
We've got the current data. What are the immediate
macro trends in 2025 that are really feeding
this investor anxiety and driving money into
gold? Well, as we've touched on, it's kind of
a cocktail of worries. You've got these persistent
sticky inflationary pressures that central banks
seem to be struggling to fully stamp out. You
have ongoing geopolitical instability in several
hot spots, which drives up sovereign risk perceptions.
And yes, the background concern about the long
term value of the US dollar is definitely still
there for global investors. You know, reading
through the analysis, many are saying quite openly
that the feeling of investor anxiety right now,
the kind of fear driving gold higher, it feels
uncomfortably similar to the lead up to the 2000s.
crisis. Even if the specific causes are different
this time, you've got that mix again. High valuations
meeting systemic distrust. That comparison 2008
levels of anxiety mixed with dot -com level valuations,
that's precisely why this moment feels so unique,
historically speaking. We're seeing these two
completely conflicting realities being priced
into the market at the same time. Which brings
us back to the core lesson from modern portfolio
theory. It's just more critical now than ever.
This environment absolutely demands robust risk
management. OK, so let's synthesize this for
you listening. Given everything we've discussed,
the extreme valuation warnings in stocks, the
huge institutional shift into gold, what's the
practical takeaway? How should you be thinking
about risk management right now? I think the
key application is about balancing your bets.
big systemic shocks, especially because of that
negative correlation during stress periods. But
real diversification isn't just about owning
stocks and gold. It's about internalizing the
lesson that market leadership rotates constantly.
This extreme divergence we're seeing should be
a stark reminder that just riding one asset class,
assuming it'll lead forever, is really dangerous.
You benefit most from intelligently allocating
across multiple, ideally non -correlated, asset
classes, things like real estate, other commodities,
maybe different types of fixed income, alongside
your equities and You have to recognize that
the environment changes, and yesterday's winter
can be tomorrow's laggard for a surprisingly
long time. Yeah. This really feels like a historic
moment. The simultaneous rise of gold and stocks
combined with those CAPE ratios screaming warnings
above 40, it forces a fundamental rethink about
how you even define risk in your portfolio. It
really does. It demands shifting focus maybe
away from just chasing those headline returns
and more towards building genuine resilience,
genuine insulation into your portfolio. Enough
to withstand these big structural shifts, not
just, you know, the next quarterly or surprise.
Exactly. We've seen that recovery measured in
gold can take decades. This divergence suggests
we might be in the middle of another major leadership
rotation. So if these market cycles do persist,
and history suggests they do, that leaves us
with a final provocative thought for you to mull
over. Considering the specific dynamics we've
discussed today, the inflation fears, the institutional
hedging against the dollar, which historical
period of asset leadership rotation do you think
best mirrors what we're seeing right now? Is
it the 1970s? Is it the post -2000 commodity
supercycle? Or maybe something else entirely?
Keep digging into those long -term cycles. We'll
see you on the next Deep Dive.