FXTM: gold 'a better alternative to many other asset classes'
Spot gold topped $1,757 an ounce early Monday, taking it near the multi-year high just over $1,764 that was hit on May 18. As of 9:29 a.m. EDT, spot gold was up $13.15 for the day to $1,755.40 an ounce.
The rise in prices coincided with a record increase in global coronavirus cases and big jump in gold inflows for the SPDR Gold Shares exchange-traded fund on Friday, according to a report from Hussein Sayed, chief market strategist at FXTM.
Sayed pointed out that some investors do not like gold as an asset class since it pays no interest. However, the strategist continued, those investors may find the precious metal “a better alternative to many other asset classes” in the current macroeconomic environment.
“The stock market rally is clearly losing steam and there isn’t much incentive to keep the bull market running much longer,” Sayed wrote. “Equity prices have already discounted the actions taken by central banks across the globe and another big round of stimulus is not likely at this stage. Assuming the S&P 500 remains in the range of 3,000 to 3,200 until year end, it will be trading at a price to earnings multiple of 24 to 26 times for 2020, and 19 to 20 times for the end of 2021. That is considered the most expensive market since the dot.com bubble.”
Further, the U.S. 10-year real yield, which factors in inflation, is in negative territory. Real yields in Europe are even lower, Sayed continued. The strategist called this “terrible news” for people approaching retirement since pensions will fall in value.
“And with the trillions of dollars in government and central-bank stimulus since the start of COVID-19, we shouldn’t be surprised if inflation begins edging higher,” Sayed said “That will be another hit for savers.”
All of this “should make gold a great hedge against negative yields, devaluation of currencies, an unexpected surge in inflation or deflation, poor economic performance and shocks in equity markets,” Sayed concluded.