JPMorgan analysts claim the recent surge in gold prices indicates an erosion in confidence for central bank-backed fiat currencies.
According to a Weekly Asset View report authored by John Normand, head of cross-asset fundamental strategy at JPMorgan Chase, investors are raising concerns over the lack of rate differentials for the world’s major reserve currencies, including the USD, EUR, and JPY.
Normand's team writes that lack of dispersion amongst reserve currencies on the global market should not be “misread as investor comfort with these reserve assets in an era of record budget deficits from high starting levels of indebtedness.”
The report continues, saying the economic crisis has generated long-term concern for “sovereign risk” in Europe and “inflation or fiscal responsibility” throughout the rest of the world.
The report notes the surge in gold prices since the start of the coronavirus pandemic is an indication of a lack of investor confidence in fiat currencies. While the JPMorgan analysts caution that the move to gold should not be interpreted as a “dollar crisis” in response to loose Federal Reserve policies, it does give an indication of global sentiment towards fiscal policy.
The report concludes,
Instead, take this Gold move as a sign of eroding confidence in central bank-generated money generally, a trend that will probably continue until enough growth returns to put fiscal policy on a more efficient path.
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