As U.S. stocks reach historic levels and Bitcoin nears its all-time highs, gold shines by achieving consecutive peaks, reflecting an increased demand for safe havens. Does this shine serve as a warning before a potential correction that could impact risky assets?
The Shine of Gold
Gold has risen to a new historical peak near $4,000, driven by a growing demand for safe assets amid concerns over a declining dollar and ongoing inflationary pressures. This trend has prompted investors to redirect their funds toward more reliable assets.
Gold vs. Stocks
Gold prices have increased by over 46% since the beginning of the year, while the S&P 500 index has risen by 14%. This indicates that the yellow metal is outperforming Wall Street amid a mix of high inflation, economic uncertainty, and rising trade and political tensions.
Weakness of the Dollar
Experts point out that gold’s outperformance over stocks reflects the weakness of the U.S. dollar. As confidence in the dollar wanes, capital seeks safer alternatives, enhancing gold’s appeal and putting pressure on stocks.
Fragility of Stocks
U.S. markets have experienced a prolonged upward trend for over a year, supported by substantial liquidity from the Federal Reserve and momentum related to artificial intelligence. However, this rise is not robust enough to withstand a long-term corrective shock.
Risk of Correction
Jeffrey Berman, an assistant finance professor at Loyola University Chicago, warned that U.S. stocks could face a correction at any moment in the coming months, emphasizing that this downturn does not present an enticing investment opportunity but rather signals the beginning of a more turbulent phase in the market.
Deeper Decline
The professor believes that a drop in the S&P 500 index to 6,350 points could open the door to a more significant decline toward 5,700 points, which is considerably lower than today’s record level of 6,731 points.
Bitcoin Trap
Berman sees Bitcoin as not being safe, as it may be poised for a sharp correction of up to 30% from its current value, with a potential drop to $80,000 or even below $50,000. The more concerning factor is that a collapse in the cryptocurrency could also drag down stocks, leading to broader declines.
Risky Bets
Analysts warn that investments in artificial intelligence may not yield the expected returns, despite the influx of hundreds of billions into data centers and energy. With the current inflation of tech stock valuations, concerns are rising about the formation of a new investment bubble that could burst at any moment and reshape the market.
Is a Correction Inevitable?
Berman stated that the upcoming wave of correction in U.S. stocks could be avoided by diversifying investors’ portfolios, reducing the relative weight of tech and financial stocks in favor of other sectors like energy and consumer goods, thus helping to diversify risks on Wall Street.
A Tough Test
So, with gold reaching consecutive peaks, it is clear that the markets are facing a tough test. While stocks and Bitcoin may not be on the brink of an immediate collapse, warnings are increasing about the upcoming correction amid growing demand for safe havens.
