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How to Invest During Market Havoc

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The pandemic has wreaked havoc on the global economy and one portfolio manager said that investors have to have a flexible and dynamic portfolio to navigate the growing uncertainty brewing in financial markets.

In an interview with Kitco News, Richard Laterman, portfolio manager at ReSolve Asset Management, said that gold should play a role in a portfolio post-pandemic.

"A successful portfolio has to have the ability to invest in a global set of asset classes," he said. "Obviously, we have varying preferences for risk for different investors and we have different levels of volatility or that investor. The common thing is that mandate, flexibility and portfolio agility must be a core holding for investors going forward.

"Gold and precious metals in general, as well as commodities, will have a place in portfolios and they can be a very good source of return for investors," he added. "[Gold is] recognized as a store value for millennia. It's an effective hedge against both inflation and systemic risk; it's liquid, it's finite. Portfolios need to have the ability to transition into gold."

Laterman noted that there are four scenarios that could play out as investors look past the current economic crisis: inflationary stagnation, with low growth and high inflation; an inflationary boom with high growth and rising inflation, deflationary bust with low growth and low inflation or a disinflationary boom, with high growth and low inflation.

Later noted that gold does well in three out of the four scenarios. The only environment that would be negative for gold is one with higher growth and low inflation.

Although ReSolve doesn't forecast macroeconomic projections, Laterman said that it does appear that the global economy is heading for a deflationary bust as the world deals with both a supply and demand shock. For the last two months country have closed all nonessential business and implemented lockdown measures for their citizens. Although some restrictions are starting to ease, Laterman said that it is a long road to recovery.

Laterman explained that growing deflationary risks will lead to more government and central bank stimulus measures, which are expected to push inflation higher; As a result, the environment could transition into a scenario with low growth and high inflation.

Although the current focus is on the coronavirus and the impact that it is having on the global economy, Laterman said that the long-term trend investors are going to have to deal with is the overhang's debt risks. He added that this issue has been exacerbated by current policy response to the coronavirus. He added that massive debt would stifle economic growth and create more volatility.

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