Gold, a seasonal rally and the future of money

Happy Thanksgiving to all of our readers. For anyone celebrating we hope you have a wonderful day and we thank you for your support this past year. 

Big news this week – gold hit $2,030 in intra-day trading on Tue, it didn’t hang on but it did close the day with a hefty $20 gain closing at $2,020.  It has since tried to hold onto the giddy heights of over $2,000 but a relatively strong dollar has put paid to that. However, there is still some upward momentum in the price thanks to confidence that the FOMC is done with hikes, and of course the as yet unconfirmed temporary ceasefire in the Middle East. 

Regardless of what reason you’re looking for as to why you should invest in gold right now, all indicators suggest that December is set to be a great month for both the yellow metal and silver. Data from Saxo Bank shows that for the last six years the precious metals have undergone a “Santa Rally”, with gold and silver yielding a 4% and 7.25% return, respectively. 

EU Banks To Show Resilience

Yesterday the ECB released its biannual financial stability review. In it the central bank urged lenders to add more resilience to their balance sheets in the coming months. The ECB is concerned about the rising levels of loan defaults and late payments that they are seeing across the eurozone. The number of missed payments by borrowers is hardly surprising given the unprecedented rise of interest rates to 450bp. 

Whilst the ECB did reassure that the Eurozone banking system is starting in a good position, it did also state that increased funding costs and rising loan losses will impact profitability.

As with the FOMC, markets are pricing in the belief that there are no more rate hikes coming. Of course, no monetary policy committee is going to confirm that just yet for fear of it loosening financial conditions too fast and too soon, sending us straight back to square one. 

Festive predictions have begun 

Thanksgiving marks the start of the festive season and there is just over a month to go before we can wave off 2023. As with every year end we are starting to see large institutions put forward their expectations for the year ahead. 

Goldman Sachs entered the fray feeling especially pleased with themselves as many of their predictions for 2023 were so accurate one might wonder if there are forces other than market forces in play. So what does the near psychic bank expect for next year? 

Well they are extremely optimistic, with big gains across the major stock indexes expected. They are still betting on a soft landing, and see inflation coming down thanks to interest rates, with no major fallout. They believe both interest rates and inflation have peaked, and no further rate hikes are to be expected by the major central banks. 

Whilst this might sound like bad news for gold, it is in truth very positive. This last year has shown gold’s true resilience in the face of rising interest rates and falling inflation. Investors (like central banks) are beginning to see the yellow metal as an asset for liquidity and stability. They are just starting to buy gold as a safe haven and not for its returns. This is great news for gold in the long term. 

Elections Could Change The Monetary System 

First up, Argentina welcomed in libertarian economist and TV presenter Javier Milei. The ‘radical’ politician took 56% of the vote. It has been reported that the majority of his support came from the youth vote. With inflation at 142% it’s unsurprising that the future of the country has been decided by those who are likely to be the most affected. 

Milei (also known as El Peluca (“the wig”) and El Loco (“the madman”) has expressed his desire to abolish the Argentinian peso and adopt the US dollar. This is an interesting approach from a libertarian – handing over your country’s monetary independence to the US. But he has also expressed his admiration for currencies that enable citizens to go about their business privately and without fear of anyone devaluing the currency through monetary policy. Contradictory, to say the least! Regardless of where his approach finally lands, this is set to cause some ripples, for sure.