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Famed Investor Prefers Gold Over Stocks Due to This Key Reason

Last Updated September 23, 2020 2:09 PM
Joseph Young
Last Updated September 23, 2020 2:09 PM
  • Stocks could become vulnerable once again as the U.S. dollar shows signs of a further correction.
  • Richard Bernstein and Ray Dalio foresee a weakening dollar in the near-term.
  • Strategists believe investors would increasingly favor gold as a haven asset and a hedge against uncertainty.

Wall Street veteran investor Richard Bernstein expects stocks to undergo a rough period in the near-term. A fading dollar, he argues, could upset many investors, and might benefit gold.

U.S. stock futures were rocky Tuesday. Gold declined after hitting a new all-time high as the dollar slump paused. 

gold price
The price of gold declines slightly from a new all-time high. | Source: TradingView.com 

Investors and Strategists Sing the Same Tune About Gold, the Dollar, and Stocks

As CCN.com reported Monday, billionaire investor Ray Dalio said he fears a U.S. dollar correction.

He said a U.S.-China “capital war”  could place additional pressure on the dollar, which has declined since April.

Historically, a weaker dollar correlates with underperforming stocks and a prolonged gold rally.

Now, more top strategists and investors are starting to echo a similar stance.

Bernstein emphasized that an extended dollar downtrend could affect the markets negatively.  He said investors need to establish a balanced portfolio to offset such risks.

The investor said:

A prolonged period of dollar weakness would bring that all into question, and certainly shift the leadership within the market to something much more pro-inflation oriented. It would certainly upset a lot of investors, and make their previous portfolios probably wrong for that new environment if the dollar were to continue to weaken.

While investors fear a further correction in the dollar, the sentiment on gold as an alternative investment remains mixed.

Robeco multi-asset head Jeroen Blokland pinpoints yield and gold correlation. | Source: Jeroen Blokland Twitter 

The caution stems primarily from gold’s explosive rally in the past month. 

The price of spot gold surged 8% in July, hitting a new record high. Investors question whether the yellow metal has enough fuel in the tank for an extended rally.

According to Bernstein, gold is still valuable to fit in a portfolio, especially in an uncertain environment.

As Long As Uncertainty Remains, the Precious Metal Is Attractive

Top pharmaceutical giants, like Moderna and Pfizer, are developing vaccines , but virus cases are continuing to soar.

Some countries that have achieved a clear peak in cases, like Vietnam, for example, started to see new cases once again.

Based on the trend of virus cases and the cautious optimism towards vaccines, Bernstein expects more uncertainty in the near term.

Against economic instability and a lack of clarity, Bernstein said gold is a “very good hedge.”

He added:

Gold historically has been a very good hedge against uncertainty. Now, it’s got a little momentum tag to it… It’s still worthwhile to have in a portfolio. The only thing that we know is certain over the next several years is that there’s going to be more uncertainty.

Analysts also point to worsening U.S.-China relations as a short-term boost for gold.

The relationship between the two superpowers is showing no signs of improvement. If the global economy slows, gold would continue to rise , according to Ally Invest chief investment strategist Lindsey Bell.

Investors are already exploring various safe-havens to counterbalance their portfolios coming off a V-shape recovery in stocks. In the upcoming months, strategists believe gold’s market sentiment could continuously improve.