Bloomberg Intelligence states that the more permanent problem in the post-Covid world is not inflation, but the decrease in inflation. Therefore, he warns that commodities are looking more bearish. However, Bloomberg says 2023 will be different for gold. Peter Grandich, who correctly predicted the 2022 market crashes for both crypto and stocks, expects new highs for the gold price.
Deflation warning and what it means for commodities
“Deflation is typical of recessions,” said Mike McGlone, senior macro strategist at Bloomberg Intelligence. “The trend of weaker-than-expected inflation measures may be more persistent than recent surprises to the upside.” The new year is defined by the elimination of liquidity at an unprecedented speed. And it all started in 2020 with the Federal Reserve’s historic tightening cycle, which followed the injection of large sums of money into the economy, which was one of the triggers behind the rise in inflation in the first place.
cryptocoin.com As you follow, what the markets have already witnessed in January is the reversal of inflation, commodities and risk assets. McGlone noted on Wednesday that:
The ISM services purchasing managers index never fell below 50 with the Fed tightening. This has implications for commodities, inflation and most risky assets. The Bloomberg Commodity Index (BCOM) could be about 35% higher than its 40-month moving average, based on past trends in the purchasing managers index since 1998.
“These could rekindle pre-Covid trends”
Looking ahead, the outlook remains the same. ISM services and manufacturing continue to contract. Also, the Fed will continue to raise rates, at least for now. McGlone said, “For BCOM, this could be very little support down to about 20% below average, and on January 10 it was about 15% above average. “BCOM tends to set sustained highs about 70% above its 40-month average and lows about 20% below its 40-month average.”
Monetary policy tightening following a recession could rekindle some of the dominant pre-Covid trends in commodities and inflation. The fall of the Bloomberg Commodity Spot Index and the S&P 500 from similar heights and speeds as in 2008-09 may have an impact on inflation. “One important difference is that the Fed is still tightening,” McGlone said. “The wealth effect from rising stocks and the more direct link to inflation from commodities may be facing superior reversal forces,” he says.
“For the price of gold, the situation will be different in 2023!”
McGlone notes that given how markets typically work, a rapid decline in inflation is likely as commodities and stocks continue to decline in response to the rapid contraction of the U.S. money supply. Looking at crude oil specifically, Bloomberg Intelligence says oil is currently overvalued against the stock market. McGlone explains:
Liquidity and inflation are shrinking from the markets at a record pace, as evidenced by the S&P’s decline of nearly 25% from its peak. While crude oil and the S&P 500 are still up nearly 20% since late 2019 (before the pandemic) to Jan. From the 2nd half, we see risks leaning towards crude oil, which continues the deflationary trajectory.
For the gold price, the situation is different in 2023. Bloomberg Intelligence predicts the yellow metal will break above the $2,000 level and ‘never look back’. In a statement at the end of December, McGlone commented:
This is our base case for the precious metal, especially as the Fed slides from its fastest tightening in 40 years to easing. We see a risk versus reward trend that continues to rise against gold, especially copper.
Grandich expects new high for gold price
Peter Grandich, who correctly predicted market crashes for both crypto and stocks in 2022, shared his 2023 predictions. The senior investor predicts weakness in most markets for the foreseeable future. Despite this, he says there are still undervalued assets that he expects to outperform. Grandich expects a bear market that will last for many years when it comes to the stock market. In this context, Grandich makes the following statement:
I will go further by saying that I no longer think we will reach a new high in my life. I think it will be really hard for the stock market to make double-digit gains for a few years.
Metals is another sector where Grandich has seen strong growth driven by fundamentals. He expresses his views on this matter as follows:
The gold price and the silver price are moving very, very well. Central banks’ purchases are also supportive for the gold price. The fact that it was able to stand on its own last year showed that the Fed’s easing will push gold even higher. Personally, I think we’re going to make a new summit.
