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Gold, commodities and value stocks are expected to grow in demand

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Financial market experts Peter Schiff and Steve Keen are predicting a market crash in 2022.

“Another financial crisis is evitable but what’s not inevitable is the nature of the crisis. It could be very different from 2008. I think it will be different than 2008 but I also think it will be a lot worse than 2002,” said Peter Schiff, CEO and chief economist at Euro Pacific Capital.

But uncertainty remains over which markets and asset classes will lead to a possible financial market rout.

“At this point we don’t know if it’s stocks, real estate or the US dollar that will crash. If the dollar crashes, it won’t look like stocks are crashing or real estate is crashing. But the crash will be happening behind the scenes, and it will be easy to measure it in terms of gold because if we get a collapse in the value of the dollar, the price of gold will go up dramatically and it will go up much more than the price of stocks or real estate. So in terms of real money, there’s definitely going to be a crash. But in terms of fiat money, it’s hard to say because we could have runaway inflation.”

Well-regarded economist and professor Steve Keen agrees, citing high levels of margin debt as the potential lead cause of a possible financial crash in 2022.

“The highest margin debt in history was in 1929. And when you look at the stock market, the level of margin debt is now the second highest it’s been in history. I think we would see a stock market crash, with leverage unwinding, the market is more overvalued than at any time since 2000,” said Keen.

David Jones, Chief Market Strategist at Capital.com, added by saying: “We have seen unprecedented events in markets in recent years, which have their roots in the financial crisis back in 2008. Near-zero interest rates and central banks continuing to pump money into the system have helped to propel bull markets in all sorts of assets – and these have lasted perhaps longer than many of us would have expected. Persistently higher inflation – something we haven’t had to deal with for many years –  and significant geo-political uncertainty haven’t caused a major crash in most markets so far, but with so much unknown for the rest of the year only the blindly optimistic would expect it to be business as usual in 2022.”

A return to traditional value investing

When discussing how a financial crisis might affect investors and their portfolios, the experts expect there to be less demand for more speculative assets.

“I think 2021 represented the actual peak of the speculative mania where investors threw all reason and caution to the wind and just piled into anything that was going on. […] [But now,] I think we’re going to see a return to a more traditional value, where the stock pickers are going to start to make money, not the indexers. Those people who are actually doing their homework and who are finding value in businesses and buying them cheap and getting a good yield. I think that’s where the money is going to be flowing out for many, many years,” Schiff said.

Market experts suggest that commodities will also feature more prominently in investors’ portfolios as the market switches gear and turns more bearish.

“I think it’s going to be commodities players that make more sense in the future. But don’t bet against the capacity of the Fed to re-inflate the stock market because it has unlimited capacity to finance that,” said Keen.

Gold could benefit but experts advocate caution

According to Jones, if markets were to tumble, then it is potentially highly likely that gold would have the most to benefit from this, particularly if the US dollar were to crash, as a weaker US dollar lifts gold.

“However, I would be a little more cautious about major upsides for Gold in the case of a stock market crash. When Russia invaded Ukraine, gold rallied, but importantly it did not take out the 2020 all-time high.

A knee-jerk move higher for gold would be expected if there is a sharp selloff for markets – but there is definitely a question of how sustainable that strength would be, given how gold has acted this year.”

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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