The Federal Reserve’s aggressive plan in hiking rates over the past year to combat runaway inflation has stirred up uncertainty in the markets, and both gold bugs and Bitcoin aficionados are perking up. With ten consecutive increases beginning in the spring of 2022, the United States is experiencing the steepest series of rate hikes since the 1980s. The primary concern is how soon the current tightening cycle may end, and how a potential change in policy may affect hard assets, both metallic and digital in nature.
Luke Gromen, founder and president of Forest for the Trees, shares his insights on the Federal Reserve’s end game during an interview on the Blockworks’ On the Margin podcast. He suggests that both gold and Bitcoin have bright prospects in the current scenario, but not without certain caveats.
For starters, Gromen acknowledges that historically, a rise in interest rates has been considered bad for gold. However, in today’s situation, a significant hike in interest rates could bankrupt the United States government, which would be incredibly bullish for both gold and Bitcoin.
Despite the challenges, Gromen is optimistic that both gold and Bitcoin will come out on top. However, he admits that he is taking a “barbell approach” to the current situation, being overweight gold, Bitcoin, and gold miners, along with some energy plays and industrial equity plays. At the same time, he maintains a significant portion of his investments in US dollar cash and short-term Treasuries.
Gromen suspects that Federal Reserve Chair Jerome Powell does not fully understand the consequences of his actions, as he seems committed to “flying the plane into the ground to fight inflation.” Therefore, Gromen believes that flexibility in managing liquidity and keeping firepower dry is crucial in hedging against the volatility that could ensue if the Federal Reserve continues not to print.
In conclusion, Gromen asserts that gold and Bitcoin stand to gain from the current situation, either through markets panicking in the face of a default by the Federal Reserve or through the Federal Reserve financing the gap with printed money. He emphasizes that investors should be prepared for the volatility that may emerge as a result, and maintain a balanced portfolio to hedge against any risks.
Source: Blockworks
