Ever since a little-known virus swept onto the global stage in late 2019, it feels for many – especially younger generations – like the world has been getting crazier each year.
It’s also true the start of COVID was the closing chapter of the first US Trump administration, which was a pretty sensational time for everybody in the Western world.
Now we’re heading into a second US Trump administration. This comes as:
- COVID-era macroeconomic conditions (inflation) continue to persist
- Disinflation is well and truly under way but sticky core inflation persists in many economies
- War in Europe appears to be set for a third year
- The Middle East is going through another bout of destabilisation
- The world is pricing in a second Trump-borne bout of ‘trade wars’
- Grandfather crypto asset Bitcoin is back in vogue
- Gold prices continue to rally in response to geopolitical and forex risks
Copper is down but still up compared to pre-COVID; gold prices are still surging but have taken a recent breather; crypto ETFs have borne a new era of valuation; China’s economy remains troubled; uranium prices have dipped below US$80/lb; rare earths prices have dropped from COVID peaks along with battery metals; global IPO markets are still struggling; AI remains the vogue hype-thing of the moment…
Safe to say, there’s a lot going on right now.
Let’s take stock of all the big catalysts of the moment as we head into the final month of 2024.
War, what is it good for? Oil, sort of
The most recent catalyst to talk about is the recently brokered ‘peace deal’ between Israel and Hezbollah. A ceasefire, a truce – whatever you want to call it, it probably won’t last.
But the news has been enough to push down Brent Crude prices -8.3% on a WoW basis as at 2.30pm Sydney time on Thursday. Just take a look at the chart:
What can we divine from this?
Well, one, geopolitical risk appears to be more keenly perceived when it comes to the Middle East more than it does regarding Russia-Ukraine.
On the chart we can see a rise in prices around the 23rd of November – that came after the US allowed Ukraine to fire American missiles into Ukraine, and Russia in turn fired an ’empty’ intercontinental missile into Ukraine.
It wasn’t technically an ICBM, but whatever, close enough – the obvious message is that Russia could nuke Ukraine if it wanted to.
And that’s exactly why Brent Crude prices rose in turn – all-out-war is often seen as a likely cause of fuel inflation due to supply chains, at the end of the day.
But just when it looked like Russia-Ukraine had snatched the geopolitical zeitgeist back from Gaza, so to speak – it was a Hezbollah ceasefire deal that helped push prices back down.
There’s also supply and stockpile considerations when it comes to oil, but for now, it looks like more eyes are on MENA than Ukraine.
(Expect volatility in the coming week as OPEC hold a meeting in the last weekend of November.)
Gold prices still strong
Another sensational story to come out of our current moment is the record rally gold has staged for much of this year, only recently seeing a sustained dip in prices for the first time in months.
Gold has been the beneficiary of multiple tailwinds this year – one year returns in gold are up nearly +30%.
Those tailwinds include the obvious safe haven risks – the spectre of a looming World War 3 is more realistically closeby than it has been for years, and at the same time, Reserve Banks spent much of 2024 boosting gold stocks.
While it’s true gold merely tracks inflation, and so in that way ‘always goes up,’ it’s clear that the surge we’ve seen YTD is accelerated and, perhaps, overenthusiastic.
Will gold demand go away? Absolutely not.
Consider that there are what could be emerging political ‘crises’ in some of Europe’s largest economies: Germany is facing difficulty getting a cohesive government to act the way it should; so is France.
And while the Trump-effect has broadly driven people back to Wall Street (and/or bonds) over gold, it’s extremely unlikely that gold prices won’t continue an upward trend in 2025.
While the brief relief in upside pressure we’ve seen in recent weeks could hang around for a while, even in a world where Trump does magically end war in Europe and war in the Middle East, it’s still the case that we’re heading into a more volatile America.
Which has consequences for everyone.
(Let us not forget that the African ‘coup belt’ is still increasingly volatile; war continues to roll on in Southeast Asia with Myanmar the flashpoint; China is still pretty bullish on seizing Taiwan, and Russia has been recruiting Yemeni Houthi fighters to fight in Ukraine.)
Here’s where we talk about Trump
Now we need to discuss Donald, because of course we do.
But on that front, there’s been at least some good news.
Trump most recently picked Scott Bessent to be his economy chief, which is notable not because he’s worked on Wall Street and is Yale taught but also because he used to be the CIO for a wealth vehicle of George Soros – an outspoken left-leaning powerhouse who often forms part of hard right conspiracy theories spouted by Trump’s more devoted fans.
And it’s also looking like threats of a 60% tariff on China were just that – threats.
As far as it can be ascertained – and not forgetting the first Trump administration was defined by a ‘touch and go,’ ‘day by day’ basis when it comes to executive staffing picks – it looks like Trump isn’t going to place such extreme tariffs on China.
Ultimately, that suggests less risk of an ‘inflation bounceback’ in the world’s largest economy, which makes it more likely the Fed will continue cutting interest rates at around the same steady pace we find ourselves in now.
The Fed’s moves are a signal to all other Reserve Banks in the world, whether they want to admit it or not. So it’s likely in the Australian context we can count on an RBA cut in H2 of CY2025 – what the RBA has been saying for years, now.
Finally, that brings us to Bitcoin.
I’m not going to spend too much time talking about crypto, but clearly, Trump is a good thing for crypto traders.
Just check out the chart:
