Growing geopolitical tensions are driving investors away from government debt and towards private assets, a shift that could eventually trigger another gold rally, according to market-cycle analyst Martin Armstrong.  

In the 1929 Great Depression people did the opposite, moving money from the private to the public sector, Armstrong told MINING.COM host Devan Murugan on the latest Top of Mine episode.   

“What I’ve been saying is that capital is moving to America but is moving to the private sector not public. Both sides go to extremes and blow up, historically,” Armstrong said. 

Armstrong argues that in Europe the problem is more serious, as countries start to realize the European Union failed them and mounting military tensions threaten to push borrowing costs higher. 

“You can’t have Europe beating the war drums and expect long-term interest rates to decline, they always rise during war, as does inflation,” he said. “The bond markets are impartial, they give us the real story here.” 

Impact on gold 

Gold’s recent weakness reflects a temporary easing of geopolitical fears rather than a lasting change in the precious metal’s outlook, Armstrong said. Once those risks seem to decline, gold also goes down, he said. 

“It’s just a low initially and particularly from the first quarter next year it’s turning up. I think what our computer is showing is that these tensions have not subsided,” he said. “That’s when you’re going to see capital accelerate more towards the private sector and you’ll see gold start to rally again.” 

With midterm elections taking place in the US on Nov. 3, alongside elections in Israel and Ukraine, there’s a lot of geopolitical risk at stake that will influence the markets, according to Armstrong. 

“If gold were to close below 4,000 on a weekly basis, then you’ll get into that 3,500 to 3,700 area, but you’re starting to run out of time as well. It’s not necessarily the price that’s as important, it’s you just have a finite amount of time that this can take place,” he said. “We have a lot of geopolitical risk on the horizon. Once that is perceived, that’s when gold’s going to take off” 

Watch the full episode here: