Inflation, Gold, and the Battle for Resources: Key Trends Shaping 2025

General Overview

• U.S. Stocks: Prices of American stocks fell last week, with small-cap stocks (Russell 2000) underperforming large-cap stocks for the fifth time in the past six weeks. The Russell 2000 slipped into correction territory.
• Positive Start to the Week: Markets began the week optimistically due to reports suggesting that Donald Trump’s incoming administration would adopt a softer stance on tariffs. However, optimism faded as Trump denied the reports, and economic data heightened concerns over persistent inflation.
• Jobs: On Friday, U.S. employment data for December showed that the economy created 256,000 new jobs, significantly exceeding expectations (155,000). Following the release, stock indices plunged sharply, solidifying weekly losses.
• Oil: Oil was the biggest winner of the week, with prices surging on Friday due to new sanctions against Russia and colder temperatures.
• Gold and Bitcoin: Despite a strong dollar, gold surged significantly, nearing $2,700, while Bitcoin remained highly volatile.

10-Year Treasury Yield

• The yield on U.S. 10-year Treasuries rose to nearly 4.7%, the highest since November 2023.
• The market is sending a clear message to the Federal Reserve: “Stop cutting interest rates.” This reflects concerns about fiscal and inflationary risks in the U.S.
• Historically, such yield increases have often triggered significant stock market declines.

Stocks in Red: Is a New Trend Emerging?

• Declining S&P 500 Performance: The percentage of stocks outperforming the S&P 500 has reached historic lows. This suggests unhealthy dynamics within the market.
• The current percentage of outperforming stocks is at its lowest level in 40 years, with concentration risk now exceeding the lows of 2000.

U.S. Treasury Secretary Realizes What Everyone Already Knows:

• Janet Yellen, U.S. Treasury Secretary: “COVID stimulus measures may have slightly contributed to inflation.”

Inflation: What Are the Forecasts?

• Traders on “prediction markets” now expect inflation to peak at 4.1% this year, up from a previous forecast of 3.6%.
• It seems inflation is once again spiraling out of control.

? “FISCAL DOMINATION” Signals a Return to Money Printing ?

• Fiscal domination occurs when government debt and budget deficits become so high that monetary policy can no longer effectively control inflation.

Consequences:

1. Central banks lose independence.
2. Inflation becomes persistent and challenging to manage.
3. Rising debt creates a vicious cycle of growing deficits and crises.

Key Points:

1. Impact on Inflation: Persistently high interest rates in an environment of large deficits can worsen inflation rather than reduce it.
2. Dependence on Fiscal Policy: Government deficits and borrowing become more crucial for economic growth than private credit or monetary policy.

Diagram – The Fiscal Domination Cycle:

1. Higher interest rates → 2. Increased debt servicing costs → 3. Larger fiscal deficits → 4. Money printing (QE) → 5. Persistent inflationary pressures.

The Battle for Resources Is Underway…

• Donald Trump stated last week during a press conference that the U.S. needs Greenland for national security purposes and did not rule out the use of military force to acquire it or the Panama Canal. Greenland is rich in metals and minerals: gold, iron, uranium, copper, zinc…
• The most critical category falls under “other” resources, primarily rare earth elements. These are crucial for high-tech industries, renewable energy, and military technology. Control over these resources is key to maintaining U.S. economic and military dominance.

Record LNG Imports from Russia to the EU:

• Despite efforts to reduce dependence on Russian energy following the invasion of Ukraine, record LNG (liquefied natural gas) imports suggest that some countries still rely on Russian gas.
• This highlights that Europe, despite sanctions and efforts to diversify energy sources, has not found suitable alternatives for LNG.

Gold and Inflation Dynamics:

• Gold climbed above $2,700 after nearly a month and marked its fourth consecutive green day.

50-Year Chart of Gold as Part of Long-Term Opportunities:

• A broader view of gold within the 3rd bull cycle includes past movements and very likely future trends.

14-Year Chart of Silver for Short-Term Opportunities:

• A broader view of silver price movements shows the latter part of the 2nd bull cycle and the start of the 3rd cycle.
• Silver is currently aiming for the 13-year-old record high of $48.50.

Best regards,

Peter

Thank you for reading.

The opinions and analyses cited are educational and do not constitute financial advice. I do not endorse or recommend any investments based solely on the above information and recommend consulting a qualified financial advisor beforehand. Investors must consider their financial situation, investment goals, and risk tolerance before making any decisions. I am not responsible for any investment losses that may arise from using this information. For in-depth advice, I recommend consultation via [email protected]