Gold Hits 6-Month High

Commodities continue to pop as Fed fear subsides

BREAKING NEWS

Gold has once again topped $2,000/ troy ounce as the market tries to determine the strength of the U.S. economy. Let's explore what this could mean. 

WHAT HAPPENED

Gold has popped 10% since briefly bottoming out in early October. Gold had a pretty sharp decline between late September and early October. In the immediate term, demand from China and India have been helping push gold prices up. However, now that Gold has fully recovered from that and is testing 6-month highs again, we can have a better understanding of that price action. 

KILLING THE DOLLAR

Basically, gold's big tumble coincided with market fears that the Fed would potentially raise rates again this year and keep them much higher for much longer. The main affect that would have would be keeping the US Dollar incredibly strong compared to the rest of the market, therefore devaluing gold. With the massive CPI beat we saw in early November, investors are basically betting that the Fed will cut rates sometime in the next 4 months. With rate cuts comes a weaker dollar. Even if the Fed is slow to cut rates, by simply pausing for a long time, other world banks have the chance to catch up and strengthen their currencies relative to the dollar. Even if rate bulls are wrong and rates stay high, there are still plenty of paths to a weaker dollar in 2024. 

WHY IT MATTERS

With the USD Imperium looking weaker every day, there are lots of potential routes for relief from how punishing the economy has been for the past year and a half. Rate cuts to either push the economy out of a recession or to gradually declare victory on inflation would finally weaken the USD's death grip on global trade. This would immediately help lift the global revenues of U.S. multinational companies by removing exchange pressure. It would also loosen global trade and speed things up for the global economy. Gold is a great harbinger of what the market thinks the dollar is going to do, so gold prices going up is a really encouraging sign. Gold has risen 2% in the last week.