A recession is looming. Gold may climb toward $5,000 but won’t shield portfolios from a stock market crash. Here are the scenarios predicted by analysts.
Gold Towards $5,000, But Be Careful: It Is No Longer a Safe Haven.
After a brief pause, the price of gold has resumed its upward trend in an increasingly fragile and tense geopolitical context, driven by the ongoing tensions between Russia and Ukraine.
In recent weeks, the inverse correlation between the precious metal and the dollar has intensified. The strength of the greenback has tempered gold’s rise, but in the long term, viewing gold as a perfect hedge against market crashes could prove to be a mistake.
The analysts’ forecasts for the coming years remain optimistic for the gold market, which continues to serve as a reliable hedge against accommodative monetary policies and inflation. Gold’s current surge can be traced back to 2019, when the market recognized that the Fed could no longer sustain rates at 2.5%.
Let’s explore the factors that could drive gold to $5,000 in the next 10 years and how it can be effectively integrated into a portfolio.
When Will Gold Reach $5,000?
The gold target price of $5,000 may seem ambitious but remains realistic despite skepticism from some investors. The current economic climate and recent market dynamics have propelled gold to new records at $2,800, representing a 30% gain since the start of the year.
However, Fed interest rates, currently at 4.50%-4.75%, are expected to decline in the coming years, even though there is a risk of inflation reemerging due to the policies proposed by Donald Trump. In the medium term, a rate cut appears inevitable: the current high rates are unsustainable for governments grappling with mounting public debt. According to experts at BofA, the terminal rate for Fed Funds will likely settle in a range between 3.00%-3.25% and 3.75%-4.00%. Lower rates could increase the price of financial assets, including gold.
Another critical factor that could drive gold to $5,000 is the contradiction between ultra-expansionary fiscal policies—with over $2 trillion more liquidity in the system than pre-Covid—and the Fed’s decision to lower rates. The excess liquidity and high public debt create a precarious situation that could spiral out of control. In this context, rate cuts may fail to address structural issues related to debt, experts warn.
This precarious environment could lead to a rise in inflation and a loss of confidence in the dollar by investors. In a scenario of high indebtedness and unconventional monetary policies, the value of the dollar could weaken, triggering a crisis of confidence in the currency. Such conditions could further bolster demand for gold.
If investors begin to question the stability of the economy and the sustainability of US debt, the demand for gold could surge significantly, driving its price higher.
Why Gold Is No Longer a Safe Haven
In a financial system awash with liquidity and burdened by federal balance sheets hiding significant losses, the effectiveness of monetary policy often clashes with fiscal expansion measures. This raises the real risk of a liquidity trap and a recession, where banks might cease financing the economy. Such a scenario could lead to a crisis in heavily indebted sectors and a subsequent stock market collapse.
Under these conditions, gold is increasingly influenced by conflicting monetary and fiscal forces. It no longer serves as a fail-safe protection against stock market downturns but behaves more like an asset shaped by speculative factors and risk perception.
Alternative Hedges Against Inflation
While gold’s fundamentals remain strong, it is worth asking whether other investments may offer a better risk/return profile. For example, companies can provide annual returns of 5% alongside long-term growth potential, whereas gold might take years to reach lofty price levels such as $5,000. Historically, as shown in market data, the stock market has consistently delivered higher annualized returns over the long term.
In conclusion, gold remains a valuable tool for inflation protection and portfolio diversification. However, it is not an ideal investment for everyone, as it carries high potential but also significant risk.
| DISCLAIMER The information and considerations in this article should not be used as the sole or primary basis for making investment decisions. The reader retains full autonomy and responsibility for their investment choices, as only they know their risk tolerance and investment horizon. The information provided is for informational purposes only and does not constitute an offer or public solicitation for savings or investments. |
Original article published on Money.it Italy 2024-11-21 15:44:00. Original title: Oro verso i $5.000, ma attenzione. Non è più un bene rifugio
