‘Millenials don’t really care about gold, they focus on bitcoin,’ strategist says

Bloomberg Intelligence Sr. Macro Strategist Mike McGlone joins Yahoo Finance Live to discuss the collapse of SVB, economic conditions, a Fed pivot, and the outlook for gold.

Video transcript

BRAD SMITH: Gold is often viewed as a safe haven and store of value during times of economic decline, though the commodity often gets a bad reputation to do its stability as return seeking investors look to riskier assets for higher returns. But as more investors weigh the odds of a US recession and impact of recent bank failures, are we due for a retreat to gold? Here to weigh in, we've got Bloomberg Intelligence senior macro strategist Mike McGlone. Mike, your answer to that question. Are we due for some type of retreat to gold or reversion to what has been referred to previously as the boomer rock?

MIKE MCGLONE: Well, the answer is absolutely yes. We're way overdue for it. If you just look at today, gold has made a new high in the year. At the same time, the US 10-year note yield has made a new low in the year. Those are enduring trajectories that I think are just getting started. The key thing that's pressured gold the last 10 years or so has been the US stock market outperforming the world. If you look at the US stock market versus the MSCI ex US index, it's been ticking up. So why touch gold in that environment?

Everything's flipping now. The Fed is starting to-- the forward market looking markets. As I mentioned, yields are starting to look for the Fed to pivot. And it looks like gold's just ready to break out. So I think these boomer rocks are going to-- they're set up for a boom.

JARED BLIKRE: And you mentioned the 10-year T-note interest rates, which I would note today looks like it's threatening to break to a six-month low. How key are interest rates to when we talk about gold and its price appreciation? Because when we are talking about breakaway inflation and laughing at the transitory remarks, gold was suffering, but it came alive last November. And I think that-- or October. And that was kind of concomitant with, finally, a drop in real rates in the 10-year and some of the other brands. Can you just explain the interplay between rates and gold?

MIKE MCGLONE: I think the markets are starting to realize that we are starting out and probably embarking on a significant deflationary period. Crude oil, fossil fuel deflation is actually fueling gold inflation. So I'll give you a good example then. You look at the price of the benchmark measure in this country of heat, electricity, and fertilizer, natural gas. It's dropped to the same price. It first started trading in 1990. It's down 80%.

So that's a sign of forward-looking markets pricing in for pretty significant deflation kicking in. The Federal Reserve's still tightening, so gold typically does very well in very inflationary environments or very deflationary environments, i.e. recession. So that's where we're tilting now. And I think that's what the scale is. And that's where the trajectory is.

The key fact is the Federal Reserve is still tightening, despite the fact we have pretty significant indications the deflation in forward-looking markets, like gas and crude oil tilting lower, the Bloomberg Commodity Index is down 20% on a one-year basis. The Fed is never tightening in that environment. And they're focusing on lagging measures like unemployment and inflation.

So to me, that's that tilt towards recession that's almost inevitable that has gold fired up. And the key thing is-- the key trigger, I think, will be when-- I say more when, when the US stock market continues to underperform the rest of the world, and gold will be the shining star. The key question we asked ourselves-- I ask myself-- is, what stops that trajectory? Typically significant Federal Reserve ease and a decent amount of lag, and they're still tightening.

BRAD SMITH: OK, so if gold is the boomer metal, then what is the millennial metal? Is it a metal like-- is it lithium? We've heard about all of this focus around some of the other metals that are going to be infused into so many different elements of how chips are created or how it's going to go into automotive practices. All of that considered, what is that new type of metal that people can also be looking into if they're kind of saying, you know what? I'm maxed out in gold.

MIKE MCGLONE: I know you didn't want that answer, but I have to give you the facts. Millennials don't really care about gold. They focus on Bitcoin. The key thing about-- I look at Bitcoin and gold is that relationship, is I say is you really can't have some of this old guard gold anymore without some Bitcoin in that space because Bitcoin is clearly on a trajectory of becoming global digital collateral in a world going that way. Now, it's still very much a risk asset, still very new. But the key thing it has I've never seen in any commodity before is definable diminishing supply and early days, low adoption and increasing demand.

So to me, in the big picture, that, to me, is where millennials will look. You look at other metals that maybe potentially have a good upside in the longer term-- copper, I would say-- but that's more dependent on global economic recovery. In the meantime, we're tilting towards recession. So I look at things like crude oil and copper still heading lower and tilting lower, and OPEC actually might have aggravated that, and gold tilting higher.

JARED BLIKRE: And I want to get your thoughts on the other gold, Bitcoin here, if millennials and Gen Z are not as interested in gold, definitely interested in crypto. What are your thoughts on the big rise in Bitcoin to multi-month highs here, all the way up to about 28,000 recently?

MIKE MCGLONE: The fastest horse in the race has been one of the best performers this year. And it was one of the worst performers last year. So that's indicative of the fastest horse race. But I think it's very much getting towards pretty significant resistance. And I'm very concerned that I fully expect in the long-term, Bitcoin is going to continue to advance and get to much higher levels. But the problem is right now I think is that ebbing tide of we have a significant liquidity contraction going on, if you look at money supply and bank deposits and the Fed's still tightening.

And Bitcoin's still a risk asset. So I think it's going to be pulled lower by the stock market going lower into recession, and then eventually come out ahead and trade more like bonds and gold. But right now, it's a bit lofty. It's a bit pricey, 40% above, let's say, its 200-day moving average. And it looks like the stock market's just starting to tilt over. So I think at some point, we're going to get inflection, but it just can't be that easy. I mean, it was up 70% this year. A bullish long-term and short-term, I'm worried about that ebbing tide pulling it lower.

JARED BLIKRE: Yeah, it looks like huge, huge overhead supply at 30,000, but we'll wait for that catalyst. But we really appreciate you being here, Bloomberg Intelligence senior macro strategist Mike McGlone. Thank you.