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A Strong Case For Gold As Recession Looms - Bernstein

Kitco News

(Kitco News) - Gold could offer the best protection for investors as fears of a recession continue to rise, according to one research firm.

In a report – ‘a strong case for holding gold’ -- published Monday, international research firm Bernstein warned that due to growing global debt and ongoing geopolitical uncertainty, financial markets are entering a period where neither stocks nor bonds will perform well, making gold an attractive asset.

“A material shift in geopolitical risk and a near-record buildup in government debt make other potential risk-free assets more questionable and also bring a temptation to create inflation, thereby further enhancing the case for gold," the firm’s global quantitative trading strategy group said in the report.

The analysts noted that for the gold market, two important measures are at levels not seen since the World War II -- global debt is at record highs and central banks are buying gold at unprecedented levels.

The analysts noted that growing debt is an inflation risk while central-bank gold demand will likely continue “for as long as the U.S. share of global GDP continues to decline.”

According to data from the World Gold Council, central banks bought 651.5 tonnes of gold last year, the largest increase in global reserves since 1971.

The research looked at four previous market downturns from 1972 to 1974, 1987, 2000 to 2002 and the last financial crisis between 2007 and 2009. The firm noted that gold-mining stocks closely tracked gold prices and achieved positive benchmark-relative returns.

Many analysts have been positive on gold in the new year as recession risks have continued to rise. Sunday, Nobel Prize-winning economist Paul Krugman said that there is a significant chance that the world falls into a recession this year.

Rising global debt also continues to attract market attention. According to data from the Washington-based Institute of International Finance, total world debt is hovering near a record at $244 trillion, more than three times the size of the global economy.

Although gold prices are struggling to find new momentum, analysts have noted that global uncertainty and rising market volatility pushed prices above the critical psychological level of $1,300 an ounce. April gold futures last traded at $1,313.50 an ounce, up 0.12% on the day.

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