gold: why it will outperform...

  1. 1,816 Posts.

    -Equities have delivered negative returns for three years now...with the trend set to continue.

    - Property has outperformed, but this is largely a function of falling rates... this driver is close to exhaustion (note: a natural floor at 0%)

    - Bonds has done extremely well due to the unprecedented fall in interest rates over the last two years...but how much fuel is left? (note: a natural floor at 0% !) As the fed moves below 1%, it is likely that the risk premium demanded by bond investors will rise significantly, leading to widespread falls. This i will be a direct result of bond market participants realising that there must be very significant problems in the economy for the cash rate to fall below 1% (read: increased probabilities of default)

    - PM (prescious metals) and commodities have outperformed over this period.

    So, those investors who have fled from equities, have found a comfortable home in bonds. It's been a very profitable safe haven... up till now...

    ...but what happens to bond values as rates get closer to the natural floor of 0%??

    The risks increase dramatically, and the potential returns diminish.

    Where will the money go when it flees from bonds?

    Property? Equities? ...??

    Does that sound likely?? doesn't sound very feasible to me.

    The flight from bonds will be as a result of increased risk aversion among bond market participants... and it is thus very unlikely that they'll jump into asset classes with significantly higher risk exposure (equities, property)

    ... a large portion of that money is going to find its way into PMs, esp. gold.

    Empirical evidence shows that gold significantly outperforms when equities are underperforming. There's a negative correlation in excess of -0.80 for #$#@$ sake!!

    To all you doubting Thomases, wake up !!!

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