Wall Street Silver: Everything Bubble Ready to Pop?
Market returns over the past year have been driven lower as interest rates have started to move higher. While the Federal Reserve states that interest rates will remain higher for longer in order to beat inflation, others see the Fed reversing course later this year.
That’s for a myriad of reasons. The most obvious is a slowing economy. However, rising interest rates will also significantly impact government spending.
That’s because a majority of government debt is financed over the short term. Those costs are rapidly rising as old debt rolls over at higher interest rates. That may create a ceiling in the short term.
The government isn’t alone. Corporations dependent on short-term debt are also susceptible to the dangers of rising interest rates now.
That said, the market selloff over the past year and the high pessimism in the markets could set up for a strong rally later in the year. That has become a reasonable contrarian view at the moment, and holds even if the Fed doesn’t lower interest rates in 2023.
Amid these contrasting views of the markets and economy, central banks have made another unusual move. They’ve become large buyers of gold in the past year, surpassing levels seen in the past.
That could be a sign that central banks are increasingly untrustworthy over the value of foreign currencies. Or a sign that they may expect inflation to last longer than expected. Either way, that could push precious metals higher this year.