Good ol Gold – Top Choice by Investors
As the possibility of a US government default looms and political uncertainties persist, investors are searching for ways to safeguard their portfolios. What was once an unthinkable scenario has become a legitimate concern in today’s volatile American political landscape. US President Joe Biden and House Speaker Kevin McCarthy have expressed a desire to reach a deal and raise the nation’s $31tn debt ceiling to avoid a potential default. However, significant obstacles remain, prompting Wall Street analysts to consider protective strategies against this newfound tail risk. Diversification emerges as a commonly suggested defense mechanism. A survey by Bloomberg supports this sentiment, revealing that gold is the top choice for professional and retail investors seeking safety, with 52% and 46% endorsing it. Despite seeming counterintuitive initially, Treasury bonds were selected by 14% and 15% of professional and retail investors. This choice gains significance when considering the potential impact of a default, which could trigger a US recession. Bitcoin ranks third, followed by the dollar, yen, and Swiss franc. These findings offer valuable insights even if a default is averted. Firstly, they need to underscore the failure of eurozone leaders to convince investors of the euro’s viability as a credible alternative to the dollar. Secondly, they represent a setback for cryptocurrency enthusiasts, as Bitcoin, created as an alternative to the established dollar-dominated financial system, appears shunned by mainstream investors when the established order faces a crisis.
Bridgewater believes what’s driving the gold rally is the past 15 years of quantitative easing and recent high inflation, which have prompted central banks and retail investors to view gold as a store of value. Gold is increasingly seen as an alternative to the dollar rather than merely an alternative to other dollar-denominated savings, highlighting the breakdown of the traditional correlation between the dollar and the gold price. Given these circumstances, it is unsurprising that investors, whether central banks or concerned individuals are turning to gold as part of their hedging strategies against a potential US default.
What do you think about gold and the current situation with diversification?
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.