Daily Gold Market Report

Echoes of the 1970s:
Wall Street Braces for Inflation and Geopolitical Risks

(USAGOLD – 2/22/2024) Gold prices continue to trade sideways in early trading Thursday. Gold is trading at $2025.51, down $0.48. Silver is trading at $22.87, down 2 cents. A team of J.P. Morgan quantitative strategists, led by Marko Kolanovic, warns that the current market narrative, favoring a stable and balanced “Goldilocks” scenario, might shift towards a 1970s-style stagflation, with significant asset allocation implications. The 1970s were characterized by high inflation, geopolitical tensions, energy crises, flat equity markets, alongside superior bond performance, and an era that solidified gold’s reputation as a crucial asset for investors seeking to protect their wealth. The analysts highlight similarities with the present, including inflation waves and geopolitical conflicts in Eastern Europe, the Middle East, and the South China Sea, potentially leading to a second wave of inflation and market selloffs. They suggest that tensions, especially with China, could trigger a global economic impact, reviving the conflict inflation scenario of the 1970s. In such a situation, investors might pivot from equities to fixed-income assets seeking higher yields, as was the case from 1967 to 1980 when bonds outperformed stocks. By the end of the decade, gold prices had reached unprecedented levels, peaking at over $800 per ounce in January 1980. This represented an extraordinary rise from the $35 per ounce price fixed under the Bretton Woods system at the beginning of the decade.