In November, gold ETFs (exchange traded funds) were popular. Investors bought $3.6 billion worth of these funds. This was up four-fold in one month. This was double the $1.7 billion invested in “plain Jane” corporate bonds.
Why? Investors are either betting on inflation, which seems unlikely to happen near term, or else they fear a major economic crisis, which seems likely. There is almost no price inflation, yet gold is soaring. If the investors are buying gold as a near-term inflation hedge, they are confused. It is a crisis hedge. This is correct:
But gold has become more than just an inflation hedge or a safe haven from the world’s woes. It’s now its own asset class—and one that has outperformed stocks over the past decade.
You buy gold to get diversification.
“It is one of the few assets over 2011 that has shown less than 80 percent correlation to financial assets like stocks,” said Nicholas Colas, ConvergEx Group chief market strategist. “So it has provided better diversification than most asset classes.”
This gold boom sends a message: “Investors do not trust government policies.” Politicians hate this.