The former managing director of JP Morgan, Jon Deane has warned that the stability of global financial markets is teetering on a knife edge as a result of the fiscal stimulus measures taken around the world to combat the economic impact of the COVID-19 pandemic. Deane says the current situation is unprecedented and in the face of so much disruption and unknowns, gold is the real winner.
He said, “We’re in untested waters. It’s a scenario that hasn’t played out before. After every major economic crisis that we’ve had, we’ve adjusted our economic thesis — how we approach markets from a central bank perspective and how we manage economies going forward. There is an excessive amount of debt on top of pretty much zero rates around the world. That debt is both at the corporate level and the individual level. It is a real concern if inflation gets out of hand. We are potentially at the precipice of that scenario whereby we don’t know how to manage this. It’s difficult to get out of this scenario.
“The Fed openly said it has a flexible approach to inflation, and it’ll let inflation run hot. And that’s a risky decision because it is hard to get inflation under control once it starts running hot. And we’re in a period where the risk is much more skewed towards bigger inflation spikes. And that leads to higher asset prices, in particular defensive assets like gold.”
Deane says that he expects gold to trade “materially” higher for the foreseeable future.