“Gold is the "go-to asset" for anyone looking to hedge against economic stupidity.

So far, hardly anyone is buying gold. But the number of gold bugs is increasing.

We have seen several banks and investment firms move gold into their "most preferred" asset class. Others will follow. This is happening even though the global economy isn't in a recession, and inflation is supposedly "under control."

Gold has become the new "bling" in portfolios. When stocks are tumbling you want something that shines.

This year, gold has outperformed the S&P 500, the Stoxx 600 in Europe, and the MSCI Global. Over the past five years, gold has also done better than these markets, except for the Nasdaq. Gold is like the straight-A student making everything else look bad.

It's not just asset managers buying gold. Central banks are buying too.

Asset managers are looking for something stable in the face of volatile equity and bond prices.

Central Banks need to reduce volatility and risk. Most government bonds are sitting at losses and have been volatile. Gold helps reduce that volatility and will help confidence in times of financial turmoil. More gold and less foreign counterparty risk makes sense given ongoing geo-political events. Printing a few more RenMinBi, Zlotys, or Rubles to buy gold doesn't seem like a bad idea.

Even though the economy is supposedly doing just fine, central banks, like the Federal Reserve, are still playing Santa Claus, with their "funny money" policies. Their policy is far from restrictive. They're handing out money left and right. They inject money into the economy through the liquidity window (discount window). They call it an "accommodative policy," which is just a fancy way of saying they're flooding the market with cash, hoping something good happens. Helicopter Ben would be proud.

People are betting that central banks will keep up this money giveaway. They think there's no way the Federal Reserve and the European Central Bank (ECB) will stick to their plans to trim down their balance sheets. Attempts to reduce the balance sheet size so far have been feeble at best. It's like watching paint dry. It's like watching someone promise to diet while holding a double cheeseburger – not very convincing.

The market is discounting the central banks’ continued accommodative and expansionary policies, even possible high debt monetization.

As governments continue to spend more than they collect in taxes, their debt grows. The preferred way to deal with that debt burden is to monetise it. This means having a central bank which prints money to lend to the government. Holders of bonds will find their asset has been debased. Printer goes "brrrrrr..."

#Gold has a bright future. It's seen as a safe bet, especially when stocks start to look like a gamble. If stock markets continue falling, or if we go into a recession, everyone and their dog will be buying gold.”

Clive Thompson via linkedin