Baldinvestor.com

Insights into behavioral investing on the Australian share market

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Signs of inflation boost gold

In the chaos and devastation of the correction so far, governments and central banks prepare the printing presses, and the first signs of inflation show up in a huge jump in the gold price. The US has stated it will provide unlimited quant easing to support the markets and walking through the fresh food section in supermarkets shows the inflation, $11 per kilo for broccoli, and we heard prices up to $20 for a cauli. Gold has held up well in the market downturn and we expect it to perform well in the future.

Australian news shows massive lines of newly unemployed globally as more and more businesses are shut down. Governments are preparing to print infinite amounts of money to support global economies that are in lock down. Talk about a universal basic income gains more traction and the virus increases reasons for governments to move to cashless societies, increasing their control over all of us. Already the US is following Japan by purchasing equities.

So as less is produced globally, and government increases its spending to fight the downturn, we can expect more inflation to appear. The AUD has already slumped to thirty year lows against the USD and we expect it to continue downwards. Initially, markets will welcome the money printing and we can expect a market bounce as Trump tries to restore the economy as we near the election. As this printing increases with little improvement in the underlying economy, more people will doubt the effectiveness of these policies and understand that the currency they are receiving will buy less and less.

This will be where the rush begins to hold hard assets, with gold being the main beneficiary . Baldinvestors current view is to take more money out of shares should the market rally from here. This cash can be redeployed back into gold based investments. We view the secular direction of markets to continue down, with the virus just being another thorn in the side of the share market. 2020-03-25
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