Although the stock market has been hitting new highs, analysts have warned investors to stay cautious during these times. Otavio Costa, an analyst at Crescat Capital said that it is the ideal time for investors to buy and accumulate gold.
In an in-depth analysis, Costa explained that the Treasury Yield Curve spreads have moved past the critical 70% threshold. Citing historical patterns, Costa advises investors to liquidate their stocks and instead buy gold for the next two years.
When the yield curve first inverts by >70%, buy gold and sell stocks for the next 2 years.
The gold-to-S&P 500 ratio almost doubled in average during all 5 cases since 1970.
Our in-depth analysis here:https://t.co/R6mStHjblv pic.twitter.com/kicy3amhif
— Otavio (Tavi) Costa (@TaviCosta) November 25, 2019
While it is certainly difficult to actually predict the markets, the yield curve indicator strongly suggests that recession might be approaching the markets sooner than expected. Based on the gold to S&P500 ratio, Costa suggests that buying gold at the yield-curve inversion will likely reward users by 100%.
The uncertain state of economic affairs around the globe is a major indicator of the next recession. Uncertainty around Brexit, the U.S-China trade war and many other indicators are hinting towards an impending recession. Costa explained:
“There is a laundry list of dangerous assets bubbles in the global financial markets today that have built up over a record long US economic expansion”.
Bitcoin a Good Bet – But Limit the Exposure
While Crescat Capital has been advising on purchasing gold, investors are still curious about Bitcoin. However, the asset management giant looks currently reluctant to put a major exposure to Bitcoin. Costa says that investors should limit their fund allocation in Bitcoin to just 1-2%. He said:
“Bitcoin is limited in supply like precious metals and in that sense could be a valuable call option on inflation”.
However, Costa says that there is no conclusive data available which suggests Bitcoin buying in case of a yield-curve inversion.
Well, markets are always unpredictable at any given point in time. And it is, of course, difficult to predict the turns based on a few indicators. Investors in such cases are requested to maintain prudence and protect their capital at any given stage.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
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