Rainer Michael Preiss believes the stage for gold as the main act has been building up for months, if not years.
In a recent Forbes article, strategist Rainer Michael Preiss went over his reasons why 2019 might be gold’s breakout year. After staying range-bound for several years, what seems like a sudden confluence of several favorable factors could soon bring the metal to the forefront.
But Preiss believes that the stage for gold as the main act has been building up for months, if not years. For many investors, the U.S.-China trade war has been the deciding factor for going long gold. The conflict has dire implications for multiple reasons, starting with the threat of an inflationary spike.
Gold is often cited as the ultimate hedge against inflation, and for good reason. According to the article, the metal holds a strong inverse correlation with the dollar, and although it can do well in times of a robust greenback, gold posts its best performances as prices of other assets and goods rise.
Analysts have already warned that a spike in consumer goods will be the first consequence of the trade war, and gold investors have surely taken note. But the trade conflict reminds investors of another issue: China is one of the U.S.’ main creditors, which highlights the unfavorable domestic debt picture that even the hawkish Fed Chair Jerome Powell is troubled by.
Preiss reminds us that John Pierpont Morgan, the banking titan, said himself that everything but gold is credit. Those words come off as ominous as central banks around the world begin to tighten monetary policy and, in doing so, take away liquidity. According to the article, most agree that a lack of liquidity was the driving force behind the 2008 crisis, and recessionary concerns are once again the talk of the town.
Bloomberg data shows 95% of the world’s assets had negative returns in 2018. This was a consequence of central banks moving from quantitative easing (QE) to quantitative tightening (QT). Gold’s confinement to the relatively narrow trading range of the past few years has been directly tied to the loose monetary policy during that time.
Those who weren’t driven to gold by the trade war or rising debt levels likely chose to focus on the stock market’s wobbles instead, suggests the article. What was called a historic bull market just a year ago has turned bearish in the eyes of many experts. It’s no secret that the strong-performing U.S. stocks have been gold’s main competitor of late, just as the now-waning Treasuries have until recently acted as a haven alternative.
With such a backdrop, Preiss finds it entirely plausible that gold will move into a multi-year bull market sooner rather than later. And as it does, gold’s advantages over other assets and credit-driven fiat currencies will become strikingly apparent.