Chief investment officer for Trend Macrolytics says monetary commodities like gold stand to benefit.
With financial markets experiencing their worst turmoil since 2008, Hard Assets Investor is conducting a virtual roundtable with commodity experts, asking a series of questions facing investors during these tumultuous times. We hope this provides some guidance when investors need it most. Today we feature Donald Luskin, chief investment officer for Trend Macrolytics LLC. Previous Market Turmoil Roundtable interviews are linked to at the bottom of this interview.
Hard Assets Investor: How will the U.S. downgrade affect demand for commodities?
Don Luskin: The downgrade is causing a third “lost quarter” in the world economy, which is bad for industrial commodities, good for monetary commodities.
HAI: Will the current low inflation environment persist? And will commodities be a good hedge should it not?
Luskin: There is no single-inflation environment. Inflation is high in some places and low in others. But be that as it may, monetary authorities will continue to try to support the banking system with liquidity, and that is generally good for commodities, especially monetary ones.
HAI: Do you think the Federal Reserve will initiate QE3? What impact will that have on commodities?
Luskin: Possibly, but unemployment would have to rise—it just fell. And inflation would have to fall—it just rose. It would boost commodities.
HAI: Where do you see gold heading? Is there a price that is “too high” given the current environment?
Luskin: The $1,700s is right, given what the ECB is having to do (in buying Italian and Spanish bonds). If QE3 comes, especially if it comes pre-emptively, then $2,000.
HAI: Where do you see oil heading? And will the spread between Brent and WTI ever revert?
Luskin: Secularly, oil will drift lower following the death of Osama bin Laden, which changes the risk premium.
HAI: What’s the best-positioned commodity for the current environment and why?
Luskin: Gold, because governments will have to create and maintain monetary liquidity.
Other Market Turmoil Roundtable Interviews