It happened! It finally happened!
The most bearish news source in America has turned bullish on something…
Now the Wall Street Journal is something I read every day… because even though the writing quality has declined of late… it’s still one of the better sources for unbiased financial news.
(And no, I never read the opinion pieces)
But in all that time, I can't remember the last time they told readers to buy something.
Stocks are a bubble waiting to pop… Bonds are a bubble waiting to pop… Crypto, obviously… Real estate… still recovering from the last time it popped.
That’s before you’ve come to private credit, the new bubble nobody understands yet...
So when the Journal ran a piece this this morning with the headline "Gold Prices Have Tanked. Buying the Dip Makes Sense" I did a double take.
There was no hedging in the article either… straight up they told readers to buy.
The idea is that the since the Iran war began at the end of February, gold has dropped 22%. That's a big move for an asset people think of as boring and stable.
Especially if said asset is supposed to be a hedge against geopolitical instability.
The obvious explanation is that a lot of investors did a 180 on what they expect the Fed to do this year… and in a rising rate envrionment… a non-yielding asset like gold becomes less attractive when you can make upwards 4% with T-Bills.
The Journal thinks it's wrong though…
Despite the drop, gold is still up 21% over the past 12 months, slightly ahead of the S&P 500. So their view is that gold isn’t falling… it’s just pulling back after a very strong run.
You see, Central bank gold buying has been elevated since Russia invaded Ukraine in 2022, largely because countries outside the Western alliance want to reduce how dependent they are on the US dollar and how exposed they are to sanctions.
This isn't just Russia and China either... in fact the biggest net buyer of gold in the first half of this year was Poland.
As for the interest rate question, it’s a toss up.
Polymarket has the odds of a Fed rate hike by September at around 50%. The new Fed Chairman, Kevin Warsh, hasn't given much indication either way.
That uncertainty cuts both ways though…
If the Fed moves too slowly to respond to rising oil prices, inflation could build.
If the AI investment boom cools off, the Fed may end up cutting rates even as oil stays expensive because of the ongoing conflict.
Either path likely means falling real interest rates, which historically has been good for gold.
It’s a pretty decent hypothesis… and it’s a breath of fresh air to see them be bold on an asset class amongst their regular permabear content.
Personally though, just buying gold bullion or a spot ETF like GLD or PHYS isn’t the best way to play a potential gold rally…
And I’ve got a much better way… more on that soon
Oliver