Every quarter, WisdomTree Investments holds a quarterly review and outlook conference call with Senior Investment Strategy Advisor, Wharton Professor Jeremy Siegel, where listeners can submit questions ahead of time and help drive the content of the call. In this blog, we review the most pressing economic and market issues that were discussed during this quarter’s call.
Question:
Professor, there have been a lot of interesting stories in the market this year. But of late, the gold and commodities markets are among the most interesting. What’s your take on the moves we’ve seen and what that means for other asset classes?
J. Siegel:
Most definitely. I think the break in gold prices is extremely significant and, let me say, very positive for equities. We all know that, over the years, commodities have increasingly been introduced as an asset class for investors to hold. Back in the 1960s, investors primarily chose between stocks and bonds. As time went by, assets—real assets, such as gold—were introduced in greater levels as a hedge against stock market declines. The tremendous volatility of gold, the tremendous decline of gold this year,1 I think is going to put significant nicks in people’s trust of gold as a safe asset class.
One thing that came to my mind—many times when I talk to people about stocks—is that everyone is concerned about the volatility. I am surprised how many questions, even today, I get asked about the flash crash, which was three years ago and lasted for about 30 minutes, when the market dropped about 8% or 9% and then came right back.2 Well, if they were scared about the flash crash, what about what we just saw with gold? We had much more than a 10% drop that only barely has come back.
Gold was supposed to be safe in QE. Everyone thought, “As long as QE is on, commodities are the place to be. Gold is the place to be.” Well, QE is on around the world at a level that we could’ve only dreamed of a year ago, and yet gold broke downward.
As a result, I’m not sure that people are going to be as comfortable with the commodities and gold and silver as they used to be, which I think is going to be to the benefit of the equity market.
Next page: Siegel on central bank monetary policies