Gold has been considered a safe haven for many years and whenever markets are faced with uncertainties, their numbers soar. Such is the case now with futures which on Tuesday April 14th are on track for a fourth straight session climb, gaining support from concerns about weakness in the global economy as well as in corporate quarterly results due to the cessation of business activity intended to stem the spread of COVID-19.
According to Steve Feldman, co-founder of Bullion International, “The way people feel and the narratives that they have gets in the way…”
As he mentioned last month during INTL FCStone’s Vision 20/20: Global Markets Outlook Conference, main narratives today include the idea that “this time is different; Strong stock market implies a strong economy; Low interest rates justify high P/E; Corporate stock buybacks support the market; and You should not fight the Fed. Meanwhile US debt and liabilities are at all time highs in a moment where US household debt is also massive.
It is the same on a global scale… “With global debt as a percentage of GDP near all time highs, there is no way this debt can be paid off.. So inflation is the only way out, besides default and so there will be inflation” Feldman warns.
If he could however change one narrative, that would be that “Gold doesn’t need a crisis.” To support this, he mentioned that the asset class has delivered positive returns over the long run,can be used as an inflation hedge, and has outperformed every single currency in 100 years.
In his opinion, gold is a better hedge against market dislocation than bonds and has no default risk, “so it is the best cash.” However he does warn that for short term investors, “if tomorrow coronavirus gets a vaccine the gold price will go down because that risk has an impact into the world.”
For Funds Society, Madrid