For the last ten years, investors have been coerced to take risk by policymakers who have responded to nearly every episode of market or economic weakness with ever lower interest rates. Over this time, with a few notable exceptions, the most productive response to this dynamic was to throw caution to the wind, embrace and invest in risky assets — stocks, corporate credit and real estate — and sit back and relax.
However, as the global economy continues to slow and policymakers abandon their recent plans of normalizing rates in favor of further rate cuts and other crisis-era policies, investors are starting to ask some crucial questions. How does this all end? What happens if the global economy slows and lower interest rates are unable to jumpstart growth, as has been the case in Europe and Japan? Will rates in the U.S. follow the same trajectory as those countries? Where can I invest capital that I do not want put at risk?
While we don't disagree with the pushback on gold as a long term strategic allocation, we think gold has increasingly become a barometer of the health of the global economy and the likely path of monetary policy going forward. We know there are many reasons why gold is not a good long-term investment, but we can also think of at least 13 trillion reasons why investors may tactically consider it a relative safe haven during what is a very unusual chapter in market history.
The chart below can be downloaded here.
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