The US dollar index continued to slide in 2023, becoming supportive of global currencies and commodities broadly. Dollar weakness could extend into 2024, supporting the ongoing ‘everything’ rise. I recommend buying the Sprott Physical Gold Trust (PHYS), explains Omar Ayales, editor of Gold Charts R Us.

The recent shift in monetary policy from the Federal Reserve is putting a ceiling on long term interest rates moving forward, with the next likely direction to the downside. The shift in policy also places pressure on the US dollar index, which had been moving higher together with interest rates since May 2021.

However, it’s not yet clear from the economic data that the inflation genie has been put back into its bottle, particularly because the structural shifts the world went through post Covid-19 remain and are here to stay.

Global fragmenting continues. The world is moving in a direction where there are two or more world orders. In many ways, it’s going back to the 80s at the peak of the Cold War. Concepts like friend-shoring and near-shoring are becoming commonplace for sovereigns across the globe. It’s not a coincidence central banks have been buying gold at a record pace.

In the US, recent data confirms a strong labor market with low unemployment and rising employment participation. It’s showing inflation remains persistent, even though it has come down from its peak. The shift in policy direction is poised to rattle animal spirits and fuel inflation expectations higher.

Although the Fed likely believes the ‘job is done’ with respect to the rate hike cycle, it’s still too early to tell without any real economic data supporting the shift in stance. Higher inflation combined with a lower rate outlook could bring lower real rates (meaning the rate of interest less the rate of inflation), or even negative real rates.

The economic condition would be very bullish for gold as it tends to outperform safe havens, particularly US Treasuries, when real rates are near zero or negative.

If anything, conditions and fundamentals that led to gold’s bullish up move in 2023 remain and are even more evident than they were last year. This tells me the rise in gold is here to stay and could continue to develop further. It will be one of the best ways to counter US dollar weakness.

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