The on-going war in eastern Europe is to trigger a recession that was already on its way. To hedge against that, an analyst said, best performers this year might be gold, bitcoin, and long term bonds.
“I think what’s happening right now, with Russia invading Ukraine, is a very high potential trigger for a global recession,” said Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence, “which is probably where we are heading toward anyhow.”
Since most central banks on the planet are implementing tightening policies due to excessive inflation, a recession is unavoidable, McGlone said, stating that the current geopolitical crisis is just a trigger that accelerates the process.
McGlone thinks such market correction is long overdue, and while the market arms itself for a recession, hedging tools like gold, bonds, and bitcoin will be in favor for investors.
A slower demand during the recession is in fact going to drive commodity prices down in the long run, McGlone added, suggesting that crude oil is likely to have peaked at $10,000 a ton and cooper at $100 a barrel.
In terms of natural resources directly impacted by the crisis like natural gas, supply won’t decrease as the U.S. will fill in to provide for the European countries.
In a recession where a 20%, or even 30%, stock market fall is expected, investors are likely to flee toward less risky assets such as gold and long term bonds. McGlone said bond prices are still high because the market does not expect the Fed to tighten as aggressively as it said, and might still tolerate an inflation above 2%. Normally, when investors expect inflation to be in control and real interest rates to be high, they will put the money back in the bank instead of in the inflation immuned bonds.
As for gold, it might go above $2,000 an ounce and never look back, McGlone said, because it is not only a hedge against inflation, but also a store of value during recessions.
McGlone’s personal view indicates that while bitcoin is still in its early stage of price exploration, it will eventually become the digital gold.
“Bitcoin is the least risky crypto, and I fully expect it to come out ahead,” McGlone said, “Right now it’s got pretty good resistance around 40,000. For it to get to $100,000, to me, it’s only a question of time.”
If commodity prices really go up instead of down, a lose-lose situation will occur. Inflation will aggravate, further slowing down economic growth, and triggering risks akin to the ones in 2008 and a possible 80% market correction.
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