The argument for buying gold is all about inflation. Central banks globally are printing money, leading to debasement of their currencies, which will drive investors into “hard assets” like gold. Gold is up about 30% since the beginning of 2019 – is now a good time to buy?
Here are my concerns with what these guys are saying:
- Inflation isn’t just about central bank activity. There are now massive deflationary pressures from COVID that will most likely counteract anything that central banks do.
- Gold has become a consensus view in the investment world over the past two months. If everyone is all in, that leaves room for a significant technical correction.
- Gold tends to be used as collateral in institutional finance, so when markets go through a downturn big funds are forced to sell to make margin calls (s.c Bridgewater in March).
My biggest concern is that gold bugs have been talking about inflation for 30 years and it hasn’t happened. People were wrong about it in 2009, but it goes back way before that.
I’ve been re-reading Market Wizards, which interviews guys like Bruce Kovener, Paul Tudor Jones, etc… which took place in 1988. Most of these guys were worried about the budget deficit and predicting massive inflation in 1990.
Is it really different this time, or will trends like falling wages, globalization and digitization drive down inflation even after the COVID fallout stabilizes?