“Pet Rock” Indeed: Bank of America Says Buy Gold As Central Banks Lose Control
What a difference a few years makes. Back in the summer of 2015, a WSJ op-ed writer, who somehow was unaware of the past 6,000 years of human history, infamously and embarrassingly said “Let’s Be Honest About Gold: It’s a Pet Rock.” Fast forward to today, when with every central bank once again rushing to debase its currency in what increasingly appears to be the final race to the debasement bottom, when even BOE head Mark Carney recommends that it is time to retire the dollar as the world’s reserve currency, pet rock gold has emerged as the second best performing asset of the year… and at the rate it is going –4th in 2017, 3rd in 2018, 2nd in 2019 – gold will be the standout asset class of 2020.
Which naturally has sparked comparisons for gold’s performance in 2019 with 2008+, when gold exploded higher as the financial system nearly collapsed and central banks started injecting trillions in liquidity into the system to keep it afloat.
Are such comparisons appropriate?
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As Bank of America writes in “anatomy of two gold bull markets”, in comparing the gold bull markets in 2008 and 2018, real rates remain key price drivers, while a critical difference in market dynamics – this time around – is that central banks have been unable to reflate global economies and even as metrics like the value and proportion of negative yielding assets has been increasing, further easing is on the cards. Linked to that, Bank of America makes a stunning admissions: “the risk of quantitative failure, which was not a concern in 2008, makes gold an attractive asset.”
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