If we are, as I believe, on the precipice of a major decline in stocks, the question in my mind as we head into 2019 is to what extent U.S. Treasuries will continue to be the main go-to market in the risk-off trade and to what extent might a loss of confidence in the dollar as the world’s reserve currency lead to a rise in the price of gold?

The answer requires an examination of likely flows of money in 2019 and beyond, and those flows are very much determined by the point at which we exist in the current credit cycle.

We are in one of the longest credit cycles on record, with 2018 being the tenth year of expansion. GoldMoney’s Alasdair Macleod quite correctly points out that in the late stages of the credit cycle money flows out of the financial sector into the real economy and with the flow out of financial assets, interest rates begin to rise.

10-Year U.S. Treasury yields rose from 1.385% on July 5, 2016, to 3.227% on October 1, 2018. The 10-year rate has corrected to 2.652% as of this writing, but it is clear that with the real economy doing better, interest rates have risen, which in turn has put downward pressure on stocks. With increased volatility in U.S. equities, the recent decline in rates reflects the safe haven risk off attitude.

But should we take it as a given, as most mainstream analysts do, that a flow out of stocks automatically means the only safety bunker to hide out in when stocks collapse is the U.S. Treasury market? The answer is an unequivocal “NO!” As Alasdair points out, in the late stages of a credit cycle, Main Street bids the total flows of money away from financial assets. So yes, some money has flowed from stocks to U.S. Treasuries in the latest equity market decline, thus providing the “correction” noted above since October 2018 in the 10-Year Treasury. But the point remains that in the late stages of the credit cycle, less money flows into financial assets, thus causing their prices to decline.

Once a major crash occurs and a new round of QE is administered, a new cycle usually begins. But can we assume that will happen again, especially with the existing credit cycle bubble, which is now the biggest global bubble yet by far?

Given its confidence in the ability of the PhD standard to replace the gold standard, mainstream pundits assume the U.S. Treasury market is better than gold. And the standard answer to my question is a resounding “Yes!” Taylor, can’t you see the performance of geniuses like Greenspan and Bernanke? Well, this 71-year-old author is old enough to remember when the gods of money were not able to hold the system together. During the late 1970s, there was a massive exodus from both stocks and bonds, while at the same time, gold rose from $35 to a momentary $850 price tag.