Fiscal recklessness from the US, Japan and many other developed market governments is at the heart of this trade. The market sentiment is progressively shifting towards assets like gold and cryptocurrencies, indicating a consensus on hedging against debasement.
The fact that we see gold and crypto moving concurrently with a rising USD, higher US real rates and nominal US Treasuries, is a clear red flag. It shows increasing market concerns over US debt dynamics and potential fiscal policies.
The US currently runs a fiscal deficit of 7.6% of GDP for 2024, which is greater than the average of the G20 nations, showcasing a substantial financial imbalance.
Authorities in China may be looking to break from their imposed fiscal limits, seeking to increase spending to boost economic activity, reflecting global concerns over fiscal health.
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