Gold to replace US Treasuries as the ‘ultimate risk-off asset’ – strategist

Thursday, October 25, 2018
By Paul Martin
25 Oct, 2018

A report by financial services organization INTL FCStone has measured gold’s ability to act as a hedge against stock market volatility, which “varies from decade to decade.”

According to the report, if the US Federal Reserve continues to steadily raise interest rates, gold will replace US Treasuries as a safe-haven asset.

“If, as I expect, rates will go higher for longer, much higher for much longer, gold will replace Treasuries as the ultimate risk-off asset, and investors should own it as an insurance against equity market risk,” said INTL FCStone global macro strategist Vincent Deluard.

He noted that the precious metal tended to rally during “big down weeks for the stock market between 1985 and 1995, when the memories of the great inflation were still fresh.”

Gold’s value as an equity hedge declined during the “great moderation” of the late 90s, Deluard said, adding that Treasuries emerged as the new risk-off asset during the deflationary years that followed the financial crisis of 2008. “However, gold has outperformed Treasuries on bad stock market weeks since the Fed started hiking rates in 2015,” he said.

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