The bull market is alive and well…
The benchmark S&P 500 Index is up 44% from its October 2022 lows.
Meanwhile, the tech-heavy Nasdaq Composite Index is up a whopping 59% since its lows later in the same year.
And bitcoin is back from the dead. The cryptocurrency is making the gains in stocks seem feeble compared with its incredible 325% gain since its lows in November 2022.
Here at Chaikin PowerFeed, we’ve been saying for a while that this market has room to continue rising. And indeed, it has been.
Even with the Federal Reserve still holding interest rates at a range of 5.25% to 5.5%, it’s looking a lot like 2021 again.
Risk appetite is back for one simple reason: Inflation is under control, which means interest rates could start going down soon.
But you may have noticed another asset that has been performing well lately. It’s one that typically does poorly when inflation is low or headed lower…
I’m talking about gold – the ultimate “inflation hedge.”
In yesterday’s essay, I discussed the big move higher in gold prices. An ounce of gold recently smashed its way through $2,000 and wasted little time reaching a record high of more than $2,170.
That’s great for gold bugs. But it poses a question…
Why is gold, an asset long associated with demand for safety and store-of-value, soaring when risk appetite is booming?
Folks, the reality is that despite stocks and bitcoin going up, there’s still plenty of uncertainty out there.
The U.S. government is racking up record amounts of debt. The deficit is now running at more than $1.6 trillion per year.
That’s roughly equivalent to the GDP of Australia that the U.S. government must borrow every single year to make ends meet.
This shortfall gets added to America’s national debt, which stands at a mind-boggling $34.4 trillion today.
With interest rates still high, servicing the nation’s debt alone is expected to amount to $870 billion in 2024.
The last time rates were this high was back in 2001. Back then, America’s debt was a more manageable $5.8 trillion.
So, we now have about 6 times more debt than we did 23 years ago. Only the economy didn’t grow nearly as much – it has only slightly more than doubled.
This is flat-out unsustainable. Investors who see this are flocking to the safety of gold.
And outside the U.S…
The war raging between Israel and Hamas in the Middle East has entered its fifth month. Meanwhile, the Russian invasion of Ukraine is now in its second year. There’s no end in sight for either conflict.
Simple logic tells you that the longer these wars continue, the bigger the likelihood they will spill over into neighboring countries.
In the Middle East, that’s already happening. The Israeli military is fighting with Hezbollah forces in Lebanon. And Houthi rebels in Yemen have launched missiles and drones against Israel. These rebels are also attacking various countries’ merchant ships in the Red Sea.
The risk of a protracted war that could spread and drag larger powers into the frontline is more reason for investors to want gold for safety.
Lastly, tensions have been increasingly building between the U.S. and China over a slew of issues.
These issues range from trade disputes, alleged human-rights abuses, threats to Taiwan’s security, and illegal activities in the South China Sea.
Moreover, a “cold” war is being waged over technology between the U.S. and China. And a “hot” war, which was unthinkable just a few years ago, isn’t that unlikely anymore.
So putting it all together…
The markets are feeling good overall. Stocks are at all-time highs. And risk appetite has grown alongside the possibility of rate cuts this year.
But at the same time, there’s still plenty of uncertainty for investors…
Isolated wars can quickly spread. Cold wars can easily turn into hot ones. And the U.S. debt can’t help but keep ballooning on the sheer weight of its interest payments alone.
As long as these worries remain, gold should continue to attract plenty of buyers – even if inflation isn’t a major concern going forward.
Good investing,
Vic Lederman
P.S. Amid the uncertainty, Chaikin Analytics founder Marc Chaikin has put together a special presentation with his next big market prediction…
In short, it has to do with an election-year event he says is headed straight for U.S. stocks. And as part of his presentation, Marc shares exactly what to do with your money to prepare for what’s already shaping up to be a very strange election year.
Get the full story for yourself – and learn what Marc says to do about it – right here.
