Investors Fear Encountering the "Ghost" of 2019: The Year of Money Printing, Fed in Trouble

After a booming 2025 with gold prices increasing by over 60%, investors are holding their breath, awaiting the next move from the U.S. Federal Reserve (Fed). Based on the latest data from Money Metals, ICICI Direct, and Dow Jones, the macroeconomic picture is gradually revealing shades of gray, signaling that an even broader monetary easing cycle may be necessary, despite firm statements on inflation. When the “Brake” of the Economy Malfunctions According to analysis on MarketWatch, the U.S. economy is sending red warning signals that the Fed cannot ignore. Although November’s employment figures still show positive growth, the nature of this growth is very fragile, mainly concentrated in non-cyclical sectors such as education and healthcare. More concerning, the unemployment rate has risen from 4.4% to 4.6%. The number of voluntarily leaving workers has dropped sharply, along with a slowdown in wage increases, indicating that the labor market is cooling due to genuine weak demand rather than a lack of supply. Felix Vezina-Poirier, author of the analysis on Dow Jones, predicts that the Fed will be forced to cut interest rates more aggressively in 2026 than the market’s modest forecasts. Currently, the “dot plot” (Fed members’ interest rate projections) only suggests one rate cut this year. However, the harsh reality of the labor market, which is approaching stagnation, will be a driving force compelling the Fed to act more decisively. The “Ghost” of 2019 and Quiet Reversal While employment reports are the tip of the iceberg, deeper cracks in the financial system are being pointed out by experts at Money Metals through the lens of the repo (repurchase agreement) market. Mike Maharrey, a Money Metals analyst, compares the current situation to the 2019 scenario. Back then, the Fed’s tightening efforts caused extreme stress in the repo market, forcing the agency to secretly inject liquidity back into the system. Currently, the demand for the Fed’s overnight repo mechanism is skyrocketing and unusually extending into early 2026. This is seen as a “canary in a coal mine” signaling risks in the mining sector. The banking system’s heavy reliance on Fed capital to maintain daily liquidity indicates significant financial pressure. Mike believes the Fed is unofficially pivoting: easing (quantitative easing) to rescue liquidity but avoiding the use of this sensitive term. The root cause lies in what Mike calls the “black hole of debt.” After years of ultra-low interest rates, the economy has become addicted to cheap money. When rates rise, the debt burden makes the system fragile and prone to collapse. The Fed is caught in a dilemma: continue tightening to fight inflation, risking a financial system crash due to debt; or loosen policy to save the market, accepting high inflation and a weakening dollar. What About Gold? ICICI Direct’s (India) commodity outlook report issued on January 6th states that after last year’s sharp rise, gold prices may undergo a correction or sideways movement to “rest and regain strength.” Short-term profit-taking pressures are unavoidable as the risk-reward ratio becomes less attractive for new capital. However, ICICI Direct analysts still forecast a strong support zone for gold around $3,500-$3,600 per ounce. Even if geopolitical risks ease or trade tensions subside, gold is unlikely to break below this floor. Conversely, if the dollar continues to weaken due to aggressive rate cuts by the Fed or increasing concerns over U.S. debt, gold could challenge resistance levels of $4,800-$5,000 per ounce in the near future. The driving force behind this rally is the persistent buying by central banks. Since 2022, these institutions have quietly accumulated about 1,000 tons of gold annually to diversify foreign exchange reserves and reduce dependence on the dollar. Currently, gold has become the second-largest reserve asset in the world, after the USD. Another subtle factor supporting gold prices is concerns over the Fed’s future independence. According to MarketWatch, the market is speculating about the potential successor to Fed Chair Jerome Powell, with Kevin Hassett, Director of the White House Council of Economic Advisers, as the leading candidate. Investors worry that political pressure could force the Fed to cut interest rates more quickly than necessary to stimulate growth, despite inflation risks. ICICI Direct’s report also emphasizes: “Concerns over the Fed’s independence will support gold prices. The market fears that the next presidential candidate will prioritize monetary easing.”