POP QUIZ

Before this year’s rally, 2022 was a rough year for bitcoin. Where did the asset bottom before rising this year? (Scroll to the bottom to find out!)

🧈 What’s Behind Gold’s Rise to All-Time Highs

Photo by Jingming Pan on Unsplash

Oh, we see you, gold.

Gold prices hit a new intraday high on Monday as part of a broader rally, driving assets higher.

Investors are betting that the Federal Reserve is done lifting interest rates this cycle, sending the price of gold to roughly $2,135.39 an ounce, surpassing the previous all-time high set in August 2020. In sum, gold is up roughly:

• 10% in 2023 vs. 19% for the S&P 500
• 63% over the past few years vs. 73% for the S&P 500

Soaring high: Some market onlookers think the Fed could start rate cuts as soon as early 2024, perhaps in March, which is another positive signal because lower interest rates have tended to increase demand for gold. (Unlike bonds, gold doesn’t pay interest.)

• On the flip side, some investors are turning to gold before a possible recession — yes, we’ve heard that line for a while now — and other factors, such as countries moving away from the dollar.
• “Markets are pricing in several key interest-rate cuts for next year—not only in the U.S.A. but also in Europe,” said a precious metals trader. “If signs of low-interest rates become more evident, gold should continue to soar next year.”

The answer? Fed chair Jerome Powell’s comments Friday were interpreted as hints toward rate cuts, which drove a plunge in the U.S. dollar and Treasury yields.

The precious metal also has benefited from purchases by governments and central banks worldwide this year amid geopolitical uncertainty, including wars in Ukraine and the Middle East. There’s also political uncertainty heading into 2024, when 41% of the global population will hit the polls.

• Gold “is the answer for many things at the moment – whether it’s inflation carrying on, rate cuts or the uncertainty with very costly wars going on,” said one portfolio manager.

Why it matters:

Let’s zoom out for a bit because it’s not every day that we hear of Americans hoarding gold or bragging about their gold stash at happy hour.

• Gold is up roughly 600% since 2000. Yet when adjusted for inflation, it’s below the $850 it reached in January 1980, more than 40 years ago.

• Generally, gold falls out of flavor when interest rates rise and investors can find more appealing alternatives, whether it’s bonds or, more recently, cash that earns a 5% yield.

Like any rally, gold’s 2023 rise could be overdone. One analyst warned that the recent rally could be due for a pullback.

But it posted a great October, rising over 10% as Treasury yields and the dollar fell amid expectations that rate cuts are near. Perhaps it has more strength in store.

TOGETHER WITH THE AVERAGE JOE

The “IKEA Instructions for Investing”

Assembling IKEA tables got you feelin’ like the Steph Curry of furniture?

The Average Joe will turn you into the Marie Kondo of investing. Organized, calm and ready to conquer the markets.

Their newsletters are the “IKEA instructions for investing” — short, simple and concise — filled with market trends and insights.

But you don’t read IKEA manuals on your spare time and you wouldn’t read financial publications for fun. Until now…

🚗 How Goods Deflation Could Speed Inflation Return to 2%

Photo by Haidan on Unsplash

Ahem. Good deflation is back. Say what?

That could mean reaching the magical, mystical, transcendent “2%” inflation target that the Federal Reserve so dearly hopes might be closer than we think.

• Hard to believe, yes. But Americans haven’t seen deflation in three years, and many people experiencing it couldn’t be happier after years of rising prices.

Deflation, or falling prices, is mostly confined to appliances, furniture, used cars, and other goods, so it’s not everything. It’s certainly not housing or groceries, either, nor is this “economywide deflation,” when the prices of most goods and services fall continuously.

• We’re not there yet, but goods likely have further to fall, which could speed up inflation’s return to the 2% target, perhaps as early as the middle of 2024.

• Durable goods (think cars, washing machines, etc.) prices have fallen on a year-over-year basis for five consecutive months. By October, they were down 2.6% from their peak in September 2022.

• That, in turn, has brought down core inflation, which doesn’t include food and energy, to 3.5% in October. That was 5.5% in September 2022.

Here we go again with the supply chains: Product shortages, congested supply chains, and consumer demand contributed to soaring prices in 2021 and 2022.

But falling demand and cleaned-up supply chains have eased inflation. Take automobiles: The price of new and used motor vehicles and parts have fallen for five straight months.

• Some economists now say inflation could dip below 2% by late 2024, much sooner than the Fed has anticipated (2025 or 2026).

• At their core, prices = cost of inputs (labor, materials, capital) plus profit
• “If you think of the supply problems as pushing up the price, the healing of supply problems should be pushing down the price back to whatever the equilibrium is,” noted one economist at UBS.

Why it matters:

Nearly everyone could use some relief in the inflation department.

Free fallin’? Vehicles are expected to fall in 2024 after years of rising prices. Gas and food are more volatile, but economists say they don’t expect anything like the rises we saw in 2022 anytime soon.

Meanwhile, businesses are adjusting to the days where rising prices might be behind us.

• Walmart’s CEO said last month that the number of items with price cuts has risen 50% over 2022 because “we’ve been in a pretty steep inflationary environment the last couple of years. So it’s good to see some of these prices come back in line.”
• Knock on wood. Quite frankly, those are words many Americans almost wouldn’t believe, even just a few short months ago.

Read more

TRIVIA ANSWER

Bitcoin cratered in 2022, like many risk assets, to roughly $16,000 last December. That was well below its November 2021 all-time high of nearly $69,000.