The global economy, after a period of stagnation, is now on a growth trajectory. This warrants a healthy allocation to commodities in investment portfolios. Additionally, there is a potential fiscal crisis looming in 2025. As a result, gold and bitcoin are valuable hedges against this risk, with an approximate 10-20% likelihood of occurrence.
The growth in the global economy is evident in Purchasing Managers’ Index (PMI) data, which indicates economic expansion. China, a major driver of global growth, is also experiencing expansion, particularly in the manufacturing sector.
The US, on the other hand, is facing a significant fiscal challenge. The country’s debt-to-GDP ratio is poised to reach unprecedented levels, and its budget deficit is unusually high during a period of full employment. This unsustainable fiscal path is expected to come to a head in 2025, when major fiscal decisions typically follow presidential elections.
The market is showing signs of concern about this impending crisis. Gold prices have reached all-time highs, and credit default swaps, which provide insurance against US debt default, have risen. Furthermore, emerging market debt is outperforming US government debt, indicating market concerns about the 2025 fiscal crunch.
Given the global growth and potential fiscal crisis, investors should consider adjusting their portfolios accordingly. Gold and commodities allocations should be reviewed, and hedges against potential volatility, such as gold and bitcoin, should be considered.
