The long run outlook for gold is very encouraging. Even in the short run, competitive devaluations by CBs are supportive.  Coronavirus is also supportive.  Do you think that investing in a gold ETF is a reasonable hedge against a short-term correction on the S&P500? Are frightened investors likely to seek the security of gold or are they more likely to flock to cash?

 

Eoin Treacy's view

Thank you for these questions which may be of interest to other subscribers. Gold and the Dollar have been rallying together against a background of increasing virus-hedging activity. That suggests investors have a preference for classic hedges rather than cash at present.

I believe the favouring of Treasuries, gold, and the Dollar and the willingness to short the Euro and Yen is based on a belief that the monetary and fiscal response to the coronavirus slowdown will to supportive of asset prices but will come at the cost of devaluing currencies and higher valuations. The accelerations currently evident in a significant number of semi-conductor, cloud and mega-cap shares are supportive of that conclusion.

The negative divergence between the higher highs on the S&P500 and the lower highs on the associated RSI suggest the risk of at least some consolidation is a rising. That is likely to be a positive development for gold in my view.