FLASH: Gold is in Vogue while this new fresh wave of monetary easing blows a bubble in risk assets, aka “always take what the market gives”
Note: On 26 July, the European Central Bank (ECB) made an announcement that could have an impact of future gold prices. According to Reuters, European central banks ditched a 20-yr-old agreement to coordinate their gold sales, saying they have no plan to sell large amounts of the metal, the ECB said, so…
Ride the Bull until Y 2020 when a US recession and a debased USD will make gold the perfect doomsday hedge.
That is the latest warning for investors betting that the Fed will help extend the business cycle with stimulus this week, and a sign of how gold fever is breaking out from London to New York.
“Gold is the perfect response if you’re entering the bubble game,” the head of global asset allocation said in an interview in London. “Every time you have such a situation, gold has soared,” said Societe Generale’s strategy team. Notably, it ranks 1st among multi-asset strategists in the 2019 Extel survey.
Worriers have long clung to gold as the ultimate store of value in a low-rate world, but the sentiment is growing as the global pile of negative-yielding debt sits near $14-T and central banks shift to Dovish mode.
ETF’s holding precious metals have taken in around $4-B this year, while hedge fund Crescat Capital is starting a Long-only strategy focused on mining stocks.
The SocGen strategist says gold will defend traders against a weakening USD, while providing a defense against a US recession next year sparked by trade disputes and a slump in corporate-profit growth.
Gold is 1 of the most correlated assets to the USD, rising most of the time when the Buck falls, and thus a good hedge against a falling currency.
The CEO of UBS Group AG warned last week of “dangerous” bubble risk spurred by central banks. For investors, the dilemma is that risk assets like stocks keep rallying to records even as fears grow over monetary impotence.
SocGen strategists were rewarded for their cautious outlook last year when easing economic momentum and higher Us rates adjusted for inflation spurred a sell-off across markets. But some of their Bearish projections for Y 2019 have missed as the S&P 500 ran due North to a fresh record.
When momentum is so strong, it’s not so easy to go against it. That id why SocGen have not recommended risk-averse asset allocation. But they have recommended assets that offer diversification.
The SocGen team is under-weighting equities, while over-weighting government bonds and credit and holding about 5% cash. Commodities is at its 10% maximum weight.
HSBC Holdings Plc recently reaffirmed gold’s role as a haven in a study, showing it’s one of the few reliably uncorrelated assets around. The commodity is trading near a 6-year high as US real yields decline.
Precious metals look very undervalued relative to other assets. We are also Bullish on miners, which tend to outperform the underlying commodity but which trade at a discount to global equities. The VanEck Vectors Gold Miners ETF is down more than 10% over the past 3 years compared to a gain of about 30% for the MSCI World.
A new awareness of global fiat (paper) currency debasement polices is now in its early stages. Gold should become a core asset for those who believe in this macro development.