Are We Partying Like It’s 1999? Investors Trading Stocks for Swiss Francs and Gold

Hopefully you’re hearing that song in your head now.

Prince released his album 1999 more than a decade before the turn of the century. The man was a musical genius, but did he know he would be describing the stock markets that year? Remember the Nasdaq rose 85% in 1999, and then cratered a few months into 2000.

As shares of Tesla and Amazon soar, could investors be partying like it’s 1999 again? Some seem to think so because they’re selling stocks to buy safe haven assets such as gold and Swiss francs.

Gold has soared 22% this year and is marching closer to its all-time high just over $1,000, while the Swiss franc is among the best performing currencies, which is no surprise since the Swiss hold a lot of gold. Of course, Swiss National Bank (SNB) also holds a bunch of Apple stock, but that’s another story.

The S&P is up 50% since the lows plumbed in March and is just 5% off of its record close in February. The Nasdaq is making new record highs almost daily.

GenTrust Chief Investment Officer Jim Besaw said:

“The easy trade isn’t putting money in equities anymore. The market might have gotten a little bit ahead of itself.”

With coronavirus cases on the rise, investors are wondering if the economy will roll back over, forming more of a “W” than a “V.”  That skepticism has led investors to bump their cash positions to 4.9%, at the high range of the historical average.

The Fed bears some of the responsibility for the rise in gold. By holding interest rates to historically low levels, the Fed has removed one of the big reasons not to hold the metal, it doesn’t pay interest or a dividend. It’s easy to forgo 0.59% on a 10-year Treasury bond to hold gold that pays nothing.

And then there’s inflation… or the lack of it. Investors worry that with so much newly-printed money sloshing around the world, eventually it must result in rising prices, whether that’s because so much money chases the same amount of goods, or because nations devalue their currency to pay their debts. Either thing would make gold more valuable.

Of course the main thing that makes gold more valuable is when everyone else wants to own it. If you think these uncertain times are driving metals higher, just imagine what will happen if the economy rolls back over and we get closer to the November election.

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