Summary: In 2020, the gold rally fizzles and oil rallies - cutting the gold-to-oil ratio in half from 2019 highs.
Gold begins 2020 hoping that a historic new move higher was set in motion in 2019. As global central banks mobilised maximum policy support for their weakening economies and drove real yields lower and even nominal yields into negative territory, for entire yield curves in the most extreme cases, precious metals rushed higher on the reduction of the cost of carry. Technicians also celebrated the four-year range-bound limbo ending with a bang.
In the crude oil market, meanwhile, the concerns driving gold higher drove oil lower. This was mostly down to signs of weakening demand growth from slower GDP growth rates, as well as fears that longer-term demand may dry up on trade wars and the electrification of cars. Added pressure on prices came from the supply side, amid surging US production and concerns that OPEC and Russia may struggle to sustain production cuts. Speculators continued to build short positions into late 2019 in the belief that the direction of least resistance lay to the downside.
In 2020, the tables are turned on both markets. The gold market rally fizzles out as global central banks ease off the gas on further policy, in a grand admission of the policy error of negative rates. As bond investors smell a general policy shift towards MMT-inspired fiscal stimulus, long bond yields rise steeply. The shift reduces interest in holding non-yielding assets like gold, as investors scramble to invest in companies with pricing power and any asset set to absorb fiscal outlays. Overextended gold longs are ill-prepared for the narrative shift and gold prices are crushed back into the price limbo below 1300.
OPEC and Russia, sensing a slowdown in U.S. shale oil production seize the opportunity and announce a major additional cut to their oil production. The timing also coincides with the next round of Aramco’s IPO which helps to ensure the desired valuation from investors outside the Kingdom. The market is caught off guard and the scramble to cover shorts while adding fresh longs eventually sees WTI crude oil return to $85/b. The gold ratio is halved from its 2019 high of 30 down to 15.
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.