Haven metal and tech equities seen to offer cushion against economic crash landing
Given their potential to act as a hedge against a US recession this year, gold and technology stocks are becoming appealing to investors.
A recent report by Bloomberg News cited a commentary from JPMorgan Chase & Co. strategists Nikolaos Panigirtzoglou and Mika Inkinen, who said the "long duration" trade – represented by being overweight on gold, growth stocks like tech companies, and currencies (short USD) – doesn't face a surge in rates because of the yield curve's extreme inversion.
“The US banking crisis has increased the demand for gold as a proxy for lower real rates as well as a hedge against a ‘catastrophic scenario,’” they wrote.
The long duration concept seems to have gained traction recently, according to JPMorgan. A trade like this is "relatively attractive," since it would have little potential loss in the event of a moderate US recession, but plenty of chances for upside in the event of a more severe recession.
Furthermore, when compared to other US equity sectors, tech has the least short interest, indicating that long/short equity investors are increasing their net exposure. In fact, this year has seen a sharp increase in the percentage of technology stocks in global equities, which suggests that the world as a whole has become overly dependent on technology.
Additionally, while it seems that individual investors increased their interest in Bitcoin, institutional investors poured money into gold. Investors are currently buying investment-grade corporate bonds in the credit market.
Given the "strong negative correlation between US bonds and DXY performance," investors in currencies reveal their trading by shorting the US dollar.
“This is because high-grade corporate bonds have typically higher duration of around 7-8 years, around double that of high yield corporate bonds”.
In recent years, the World Gold Council emphasized the preference for the precious metal among investors as well as the possibility for growth among those who have not yet made a purchase.
With 46% of retail investors possessing gold assets, research has found gold is the third most often purchased investment, after savings accounts (78%) and life insurance (54%).
"The retail gold market is healthy, with gold being considered a mainstream choice,” said David Tait, CEO at the World Gold Council. “But what really excites me is the untapped part of the market: those people who have never bought gold but are warm to the idea of doing so in the future.”