Investment - Articles - Investors sour on US volatility as US risks money illusion

Global investors are taking an increasingly dim view of US political volatility – and it’s showing up in markets, according to John Wyn-Evans, Head of Market Analysis at Rathbones: “While balanced portfolios were broadly flat last week, the picture diverged sharply by currency: dollar-based investors saw gains, but sterling and euro investors registered losses thanks to a near-2% drop in the dollar’s global value. That raises the risk of money illusion for US investors, whose rising portfolios may mask declining international purchasing power.

“Two market moves stand out. The dollar’s weakness is testing the bottom of its trading range, reviving questions about whether long-term depreciation is accelerating. And precious metals are surging far beyond what dollar softness alone would justify. Gold has broken above $5,000 per ounce, up 18% this month, while silver has climbed over $100, gaining more than 50% year-to-date.

“Central banks began shifting from dollar reserves into gold in 2022, but allocations from private investors and institutions now appear to be gathering pace as well. ETF holdings have been rising steadily since last April – at a time when gold’s price, now multiples higher than in 2020, has dramatically increased the monetary value of those exposures.

“Eyes will now turn to the impending appointment of a new Federal Reserve Chair, expected as early as next week. What looked like a duel between the two Kevins has shifted again. With Kevin Hassett out of contention and Kevin Warsh undermined by his unshakeable hawkish record, the new favourite is now Rick Rieder, BlackRock’s CIO of Global Fixed Income and a widely respected ‘bond guru’. Rieder’s ascent narrows the field to a candidate seen as market-savvy, pragmatic and less ideologically rigid than his predecessors in the race. While his appointment will matter for the policy tone, it is unlikely to overshadow the deeper drivers currently shaping asset allocation.”