Key Macro Charts: Do not underestimate silver's performance during rate-cut cycles (2024/9/20)
The Fed's easing monetary policy may bring macro benefits to precious metals and commodities. Analysts point out that during a rate-cutting cycle, the average increase in silver prices is 32%, and in the mid-term of a rate-cutting cycle, silver prices have risen by 332%. At the same time, funds from money market funds usually flow into bonds rather than US stocks, and the liquidity cycle has a significant impact on gold prices
Federal Reserve and Financial Conditions
Analyst: As shown in the chart below, with financial conditions already at their most accommodative in the past two years, the Federal Reserve has decided to ease monetary policy, which may bring significant macroeconomic benefits to hard assets (precious metals, natural resources, etc.), especially commodities.
Inflation remains deeply rooted in the U.S. economy, and historically, natural resources have been undervalued and underallocated, especially compared to long-term financial assets.
MMF (Money Market Funds)
Bank of America: The possibility of massive outflows from MMFs due to the Fed rate cut is unlikely, as typically, rates need to fall by more than 2% to trigger outflows from money market funds. (After the Fed rate cut cycle begins, the flow of funds from money market funds has a significant impact on risk assets)
The key point is: when money market funds experience outflows, historically, these funds usually flow into bonds rather than U.S. stocks.
Liquidity vs Gold
Against the backdrop of ongoing fiscal expansion, the outlook for the new liquidity cycle continues to impact the price of gold. The orange line in the chart below represents the 2-year TIPS yield, the black line represents the gold price trend, and the purple line represents the total amount of currency in circulation (trillions of U.S. dollars, year-on-year change), showing a close correlation between the latter two.
Rate Cuts vs Silver
Analyst: According to data analysis, in the 24 months following the start of the past three rate cut cycles, the price of silver has on average risen by 32%, a significant increase.
However, many people have overlooked the fact that: if we start counting from the mid-term of the past three rate cut cycles (as indicated in the chart below), the price of silver has actually risen by an average of 332%.
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