Soaring stocks hide U.S. fragility as gold surge sends warning to investors
The strength of U.S. stock markets would have any reasonable investor believing all is well with the world and that U.S. exceptionalism is alive and well.
Yet, the stock market’s buoyancy belies the head-spinning conga line of events over the first month of 2026 that would, at any other time in history, have caused the market to plunge or coincided with it.
Take gold’s 17 per cent ascent so far this month, which follows a 66 per cent rise in 2025. Such moves are unusual. Since gold began trading freely in the 1970s, the average annual return for gold has been roughly 6-8 per cent. January’s return doubles that annual number.
This article was first published in The Australian on 04 December 2025.
Not to be outdone, silver recently jumped 14 per cent in a single day, trading in a 15 per cent range, as the Shanghai silver premium shot to a record US$23 an ounce, all but confirming a physical supply crunch. So unusual is silver’s 15 per cent intraday range that it represents a five-sigma event, a statistical anomaly so rare it’s expected to occur once every 14,000 years, give or take.
Meanwhile, January saw the U.S. Trump administration capture Venezuelan president Nicolas Maduro in a U.S. military operation that kidnapped him from his home in Caracas and transported him to New York to face drug trafficking charges. President Donald Trump backed up the operation saying he would “run” Venezuela and sell captured oil, banking the money in an offshore account controlled by himself.
Elsewhere, Trump threatened to impose tariffs on eight European allies that opposed his attempts to take over Greenland, resulting in intense diplomatic tension and the deployment of the North Atlantic Treaty Organisation (NATO) forces to Greenland. Does he actually want to take over Greenland at all? Who knows. Many knowledgeable about the matter reportedly suggest the Greenland fracas is merely another decoy, taking the spotlight off other matters such as the Epstein files.
And now U.S. Navy ships are assembling in the Middle East as tension with Iran drives up the price of oil by as much as 10 per cent from its December lows.
Simultaneous rise
From all of this, investors are reflexively adopting a “buy first, ask questions later” position, leading to equities and safe havens such as gold rallying simultaneously, only to reprice violently on the next headline.
As gold and precious metals surge to record highs, the U.S. dollar has maintained its status as a safe-haven currency, even as the nation becomes the source of the very turmoil that usually causes investors to seek safety in the U.S. dollar. Meanwhile, 175 basis points of interest rate cuts since September 2024 means the data-dependent Federal Reserve (the Fed) is in no rush to cut rates further, further supporting the U.S. dollar.
Behind the optimism, however, further developments are worth your attention.
Speaking of the Fed, its independence is again being threatened, this time by the Justice Department, which has launched a probe into Fed chair Jerome Powell, ostensibly over the renovation costs of the Federal Reserve’s headquarters. However, critics – including three former Fed chairs – see it as an “unprecedented attempt” to undermine monetary independence.
Powell’s response is something all investors should heed.
“This is about whether the Fed will be able to continue to set interest rates based on evidence … or whether monetary policy will be directed by political pressure,” Powell says.
Elsewhere, but still in the U.S., the Supreme Court’s decision on whether Trump’s tariffs are legal might just be the next development triggering volatility in financial markets.
And this institutional friction coincides with a shift in U.S. law enforcement priorities. Recent budget data suggests the administration is defunding the agencies that police corporate America while increasing coercion on the working class and threatening to defund so-called sanctuary cities – those that aren’t co-operating with federal efforts to deport illegal immigrants.
Structural shift
The optimism for corporate America, monopoly power and profits, a hallmark of early Republican terms, perhaps explains investor enthusiasm and stock market highs.
At the same time, the stock market is undergoing something of a structural shift. The era of the “Magnificent Seven’s” dominance appears to be fading without disrupting the overall market. Instead, the Mag Seven is being replaced by the “Impressive 493”.
Small and mid-caps, as measured by the S&P 400 and S&P 600, are currently beating the S&P 500, and the Impressive 493 is finally gaining ground as investors look for value outside of the overcrowded mega-cap tech space. Gains in small and mid-cap industrials have been particularly impressive, alongside strong performances in financials and healthcare.
Behind the theatrical foreign-policy spats, usually prompted by the U.S. President, lies a more sobering reality.
The U.S. consumer is hurting. Even as inflation moderates, the structural costs of food, rent, healthcare and energy continue to erode purchasing power. And with housing affordability at generational lows and no clear peace framework for Ukraine, the administration’s flurry of international and domestic headlines serves to divert attention from enormous fiscal deficits and rising debt-service costs.
This year is the mid-term year for the U.S. electoral cycle and, historically, on average, it is the worst of the four-year presidential term. And despite U.S. market enthusiasm, 2025 saw the S&P 500 underperform the All Country World ex-MSCI stock price index. Meanwhile, surging precious metals lend credence to the “sell America” narrative.
What does it all mean? Number one, remain invested. Number two, diversify. Whether that’s private credit, small and mid-cap funds, arbitrage funds, commodity funds, long-short funds, or global funds, the message I am receiving seems to be: don’t sell out of equities, but rebalance away from U.S. equities because 2026 might be more fragile for the U.S. under the current administration.
If you’re among those rethinking your exposures and balances, speak to David Buckland or Rhodri Taylor at Montgomery on (02) 8046 5000 or email us at investor@montinvest.com.
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