Something unusual is happening with gold. Here’s what investors and traders need to understand.
Transcript:
Conway Gittens: So you’re a global market strategist. Talk to me about gold as we sit here. Gold is trading near $3,000 an ounce, which is, you know, an all-time high. So what is the message gold is sending to the rest of us?
Kristina Hooper: So I think the message is that, you know, historically, what we’ve seen is a pretty low correlation between stocks and gold. When stocks went up, gold typically went down and vice versa. That’s changed. Now we’ve seen stocks go up in tandem with gold in the recent past.
And I think that suggests that investors are using gold as a geopolitical risk hedge as something of a fiscal deficit risk hedge. And so they’re continuing to be risk-on and have exposure to equities. But they also have an allocation to gold as that hedge.
And so it says to me, seeing gold continue to move up, is that investors recognize that risks are increasing and that they’re OK with just being well-diversified and being risk-on but having that allocation, I should also say, that there are other factors impacting the rise in gold. We have price insensitive central bank buying, which I think is a significant driver. Again, is related to skepticism about the fiscal situation in the United States to a certain extent, and also as well as a reaction to sanctions and, and all that.
I don’t think the rise in gold, though, is saying that there’s a big inflation risk, because I think historically, gold hasn’t always done a good job as an inflation hedge. So I think this is more about a geopolitical risk situation, fiscal deficit. And also gold has become sort of a quasi alternative currency. You know, I don’t think the United States dollar will ever not be the premier global reserve currency of choice. But I think for some that perceived the US dollar as a safe haven, and for some that perceived US treasuries as a safe haven, they’re seeing an alternative in gold.
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