Gold at $3,000: Analyst Draws Parallels to Financial Crisis

The shock from Monday’s market turbulence still lingers as the week comes to a close. However, one analyst believes this might just be the beginning. He sees parallels to the financial crisis, suggesting that the impending crisis could be even worse. Yet, he sees gold on the rise.

Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, drew unsettling parallels to the 2008 financial crisis in a recent interview with Jeremy Szafron, anchor at Kitco News, warning that the current situation could potentially be more severe. “In my assessment, it’s going to get worse,” McGlone stated. “Firstly, if you look at stock market volatility, the large volatility index, the 52-week moving average minus the T-Bill rate, it’s as low as it was in 2007.” The ratio between the market capitalization of the U.S. stock market and the gross domestic product is currently about twice as high as it was before the crisis.

He pointed out that the current scenario differs from the 2008 crisis, which originated in the U.S., and explained, “Now I think it’s a global macro crisis. This global perspective underscores the extensive economic challenges faced by several major economies, contributing to increased market turbulence.”

These concerns are also reflected in the commodity markets. For example, crude oil prices have been volatile, influenced by both supply and demand dynamics. Recently, WTI crude oil futures fell below $70 per barrel, reflecting concerns about global demand as economic growth slows in major economies like China and Germany. The Bloomberg Commodity Index also recorded significant declines, indicating deflationary pressure across various commodity classes. “Commodities are showing us clear deflation,” McGlone remarked, citing the sharp correction in industrial metals and grains.

In this turbulent environment, McGlone emphasized the importance of shifting investment strategies towards low-risk assets. “In the current environment, it is wise to underweight risk assets and overweight low-risk assets like gold and U.S. Treasury bonds,” he advised. Gold, in particular, stands out as a resilient asset. “I think it’s only a matter of time before gold reaches $3,000 per ounce,” he said. He explained that gold’s historical performance during times of economic instability, combined with its role as a hedge against currency devaluation, positions it as a strong asset for the future.