Investment psychology is chaotic.
Adam Button, head of currency strategy at Forexlive.com, said the market was clearly divided into two camps after the massive budget bill was passed last week.
'The optimists are buying stocks, while the pessimists are turning to precious metals. The optimists believe that budget deficits will boost growth, while the pessimists are concerned about the burden of future debt repayments.'
Button describes this clear divergence: "The bearish money is pouring into Bitcoin, silver and gold. Silver is mainly attracting retail investors, as is Bitcoin, while gold is chosen by central banks and global reserve managers for its stability. They may be waiting for the dust to settle after the tariff wars before adjusting their reserves from USD to gold."
Warning about speculative bubbles and budget deficits
Button is concerned that many of the year’s biggest performers are meme stocks, stocks driven by social media trends. Trend-driven markets are a red flag for the economic cycle. When you see irrationally priced stocks, you can sense a big correction coming, perhaps after the midterms, not this July.
This expert commented: 'The US budget bill provides short-term stability, allowing businesses to deduct all investments in the first year. But who will pay this huge debt? When the next recession comes, no one in Congress will care about fiscal discipline anymore.'
He predicts that the next two to four years will see an explosion of unregulated financial activities. ' The government has enough support tools, the Fed has 400 basis points left to deal with the crisis. In a context where no one cares about fair pricing, everything can only go up,' Button analyzed.
Impact of tariffs
As for the new tariffs, Button said the market has stopped reacting seriously to President Trump’s policies. The Canadian dollar barely moved after the 35% tariff announcement, and even the Brazilian real only weakened slightly despite the surprise tariffs.
Button predicted that Congress could start to push back on tariffs after achieving its goal of cutting corporate taxes. "If Congress revokes Trump's tariff authority, that would be bad news for gold," he said, adding that such a move could come as early as September.
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