- Stocks are trading at all-time highs
- Gold bull run looks to fizzle out
- The excuse possibly – World economy looks back on track
It was in the fall of December last year that US Federal Reserve under the leadership of Chairwomen Janet Yellen decided to lift the key interest rates in the world’s largest economy for the first time since 2006. The timing was perfect then but lasted only for a month; as the world entered the new year things looked scary to everyone.
All of sudden people – analysts, economists, central bankers, hedge funds etc etc began to change their view point and made common investor believe that “All is NOT WELL with the world – economy, policies”. Yes there were some concerns about global economic health (which anyways existed since 2008 crisis) supported by Brexit and Trump presidential candidacy which were at that time considered to be the very “Black Swann Event”. And this led the investment money flow towards the safe haven assets Gold and Silver. The prices of Gold rallied from $1062/oz at the start of 2016 to test the highs of $1375/oz levels a whopping 30% jump ushering the yellow metal in a bull run.
This is in stark contrast to equities which are trading at all-time highs and is showing no signs of instability. Negative interest rate environment in some of the developed nations and persistent low inflation hasn’t deterred investors to refrain from equity investments given the fact that the interest rate hike from Fed is logically of equal importance to equities.
Brexit happened and Gold prices started to soar to record highs. Investors from the world over put in, especially Britain, more investment in Gold and Silver ETFs as well as increasing physical holdings of the yellow metal. The investment theme was backed by events that could derail the world economy as well as put the greenback on the back foot. The rally in precious metals was supported by physical demand and physical holding by investors across the globe.
The Brexit has happened while the physical holdings are still held in the form of ETFs across the globe. Trump’s presidency has of course taken a hit and odds favour Clinton victory in US elections this year. US Fed is mostly likely than ever to raise rates in December meeting. Everything said and done why the commodities are always denied of a bull run or for that matter even a bear run. Things are now focussed on US rate hike odds which certainly would happen very soon but the question is why the economists and central bankers created a hoax about world economy coming under tremendous pressure with the Black Swann Events listed above? When not much has changed in last 10 months in terms of threats to economy or US rate hike expectations or Brexit outcomes then what significance does the selloff in Gold and silver seen today hold for the investors. Shouldn’t investors hold on to ETF holding and gains in gold for the time to come? Shouldn’t the meaning of a bull run in Gold actually materialise? If US was the only country which supposedly have come out of the 2008 aftermath shouldn’t economists have trusted the Federal Reserve decision to hike interest rates to guide the world economy to come out of the pains of the 2008 aftermath? Shouldn’t a selloff have had happened in Gold after the rate hike?
The fact is that after 2008 investors saw money being pulled out of all the asset classes and the only favoured destination was Precious metals. Once easy money started to pour in from central banks across the globe all listed companies instilled the faith in stock markets amongst the investors. Now that easy money is gone from US and equities running at all-time high most of the investors’ money is blocked in equities. China, US, FTSE, Japan all major stock exchanges is losing the volatility and scope for further movement. The next avenue was bonds but due to low returns and mainly negative returns the money was channelized towards the precious metals once again by creating a hoax about the ill health of the economy. If the pillars are strong the building won’t fall – likewise the selloff seen today shouldn’t deter physical investment in precious metals going forward. If investors are not being fooled by the central bankers and economists the yellow metal should breathe back to life even if the charts look scary. However, if even this doesnot seem plausible option for the economists and the game goes on, a tragedy is bound to happen soon as the investment amount is being locked up in equities, properties, bonds, and now precious metals and there is no further scope to chase fresh investment. Hope that doesn’t surprise us in 2017!