Crude will continue to trade in a tight range, with upside capped by weak demand and OPEC+ providing downside protection. While oil markets remain sensitive to supply-demand fundamentals, the larger driver is US monetary policy. The Federal Reserve, facing political pressure despite still-robust inflation, may cut rates even though the economy is not as soft as perceived. Any cuts would lift liquidity, pushing equities, bonds, and precious metals higher. US economic growth is slowing, with consumer sentiment weakening under persistent cost-of-living pressures, but we expect the US to avoid recession in 2025 due to the abundant liquidity. Structural issues will surface next year, leading to stagflationary conditions, as tariffs, inflation pass-throughs, and slowing growth converge.
Gold, Debt, and Global Policy Divergence
Gold is in a structural bull market driven by fiscal stress and waning confidence in fiat currencies. Rising long-end yields across developed economies reflect expectations of policy mistakes, while central banks, especially in emerging markets, are diversifying reserves away from Treasuries and into gold. This strong demand is offsetting traditional headwinds from higher yields, keeping gold resilient. Central bank policy between Europe and the Fed has diverged a little, with the latter appearing set to cut sooner, but historical precedent suggests alignment will return, as all face sticky inflation, slowing growth, and rising deficits.