Record price surge in precious metals and crypto heralds an economic shift as the Fed concedes
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Gold has achieved a remarkable milestone, hitting a new all-time high above $2,100 on Monday, while Bitcoin broke through the psychological level of $40,000, aligning with my year-end target of $50,000. As the Christmas rally gains momentum, investors increasingly favor high-risk assets.
This remarkable surge is underpinned by several factors, notably the Federal Reserve’s anticipated dovish pivot and a weakening dollar. Investors responded positively to remarks from Federal Reserve Chair Jerome Powell, instilling confidence that the central bank has concluded its monetary tightening, potentially setting the stage for rate cuts beginning in March. As the allure of gold intensifies with diminishing interest rates, the precious metal finds itself in the midst of what can be described as a “perfect storm” in 2023.
November’s market rally reflects optimism in risky assets
In tandem with gold’s ascent, global stocks have closed out their most substantial monthly rally in three years. Investors are embracing risky assets with enthusiasm, fueled by the belief that major central banks, including the Federal Reserve, are gaining ground in their battle against inflation. November witnessed a robust surge in the stock market, with the S&P rising by 9%, and the Nasdaq outpacing with an impressive 11% gain. This November rally, the most significant since 1980, reflects broad optimism surrounding potential interest rate cuts and a more accommodative monetary policy.
Silver gains traction as industrial demand rises
While gold commands attention, silver is poised for a notable resurgence. Despite trailing behind gold in recent weeks, silver has traded at its highest levels since July, closing March 2024 silver futures at $25.895 per ounce. The market is witnessing a notable surge in industrial demand for silver, positioning it as a compelling asset. Analysts emphasize the attractiveness of silver compared to gold, with the gold-silver ratio exceeding historical averages. As the global market continues to adapt, silver’s catch-up journey emerges as a focal point in the evolving landscape of precious metals.
When the central bank transitions from a hawkish stance to a dovish one, it triggers what traders commonly refer to as “animal instincts” or, more specifically, the “animal fear” of missing out on the Xmas rally. This phenomenon, often encapsulated as FOMO (Fear of Missing Out), prompts traders to grapple with the dilemma of explaining poor performance on their books when the markets surpass their expectations.
Ho Ho Ho…
The early signs of this transition are evident in the declining value of the US dollar, driven by speculation on a Fed pivot. Naturally, this shift bodes well for risky assets, particularly the meme stocks or digital gold, in the form of cryptocurrencies such as bitcoin. The expectation is that these assets will thrive if the Fed concludes its rate hikes and begins to implement cuts. It is crucial to recall that the recent bullish momentum in precious metals, notably gold, commenced amid geopolitical tensions in the Middle East. Investors sought refuge in gold as a hedge against economic uncertainty during this period.
Powell’s remarks have set off a significant chain reaction, propelling various assets to new heights. Gold, in particular, has reached an unprecedented pinnacle, while the dollar has experienced a sharp decline, reflecting the market’s anticipation of imminent rate cuts.
Subsequently, there has been an intense recalibration of the likelihood of easing, with the odds of a March rate cut surging to an all-time high of 80%, doubling overnight, and up from a mere 10% just five days earlier. As ZeroHedge astutely observed, “This was Powell’s last chance to talk stocks down until December 13. The blackout period begins tonight.”
This was Powell’s last chance to talk stocks down until Dec 13. Blackout period begins tonight
— zerohedge (@zerohedge) December 1, 2023
In essence, the key takeaway is to align with the Federal Reserve’s trajectory, avoid resistance, and embrace the potential prosperity of the upcoming Xmas rally.
…as the saying goes: Don’t fight the Fed!