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(Kitco News) – The first quarter saw gold prices massively outperform the equity markets and this trend is expected to continue, according to a former analyst at Bear Stern.
Jesse Felder, publisher of the Felder report’s investment newsletter, reiterated his long-term bullish outlook for gold, saying in a recent report that the price of gold could easily exceed its 2011 peaks. ” begins a new trading week with relatively low volatility, with prices trading above $ 1,600 an ounce. Gold futures for June last traded at $ 1,646.70 an ounce, relatively unchanged that day.
Felder said he sees two factors that should prompt investors to add a “significant portion” of gold to their portfolio. .
The first factor Felder said he watches is the value of gold relative to the stock markets. He said that the gold buy signal was triggered in February when the gold: equity ratio turned positive.
“The 36-month rate of change in the ratio of gold to the S&P 500 provided a pretty good signal in this regard. In the past, when it crossed the zero line, it was a good buy signal for gold and a good sell signal for stocks, “he said.
His comments come after a poor performance in the first quarter for the Dow Jones Industrial Average and the S&P 500.
For the first three months of 2020, the Dow Jones lost 21.8%, its worst quarterly performance since 1987. Meanwhile, the S&P 500 fell 18.7%, its worst quarter since the 2008 financial crisis. In comparison, future gold prices ended the first three months of the year with a gain of almost 5%.
Financial markets were hit hard last month as the global economy came to a virtual standstill due to the COVID-19 pandemic. Governments around the world have forced non-essential businesses to shut down and people to stay at home to slow the spread of the deadly virus.
The second factor that will continue to support gold prices, said Felder, is the considerable amount of money spent to combat the impact of the coronavirus on the global economy.
“Gold prices tend to rise when the budget deficit as a percentage of GDP increases,” he said.
Last month, the Federal Reserve made three emergency announcements that cut interest rates to zero and introduced unlimited quantitative easing.
“Some expect the deficit to increase much more in the current crisis than it did a decade ago due to the combination of record fiscal stimulus coupled with lower revenues. If so, gold would most likely explode above the peak it set in 2011, “he said.
Felder added that not only is gold a vital tool for portfolio diversification, but in these times of economic uncertainty it is also an essential asset for the preservation of wealth.
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