Gold Is The Only Safe-Haven Alternative—Schroders
The comments below are an edited and abridged synopsis of an article by Neils Christensen
Russia’s invasion of Ukraine has ignited a fire in the gold market, with the price holding well above $1,900.
However, one British asset management firm said that regardless of what happens in Eastern Europe, there are other reasons why investors should be looking to add precious metals to their portfolios.
James Luke, fund manager at Schroders, which manages more than $990 billion in assets, said that along with Russia’s war in Ukraine, which has created a massive humanitarian crisis affecting millions of people, shifting monetary policies around the world pose a major threat to the global economy.
“Besides looking for a store of value in times of heightened market stress, we believe many investors see the coming rate hiking cycle as extremely risky given the abnormal macroeconomic backdrop,” Luke said.
“Apart from being highly indebted, developed economies have become reliant on massive monetary and fiscal stimulus. The potential for negative feedback loops (a reaction that causes a decrease in function in response to a stimulus) into the real economy and financial markets as stimulus is removed and interest rates rise, is elevated,” he added.
Luke said there is a risk that central banks, in tightening monetary policies, will create stagflation, an environment of low growth and high inflation. If this happens, central banks will be quick to reverse course, which means real interest rates will stay in negative territory.
In his first day of testimony before Congress, Fed Chair Jerome Powell said that the central bank remains on track to raise interest rates in March; he added that the central bank needs to be nimble as it evaluates incoming economic data.
Luke described gold as on its way to being the TINA (there is no alternative) safe-haven asset in coming years. Bonds in particular, a traditional hedge against market volatility and a counterbalance to portfolio risk, aren’t useful in the current environment.