On gold, the question we are not asking is whether the price will go up or down and concerns around the price being at an all time high. The question for us is more a portfolio construction and diversification one. Do we believe gold [as perceived by the market (remember: in our view history rhymes because investors tend to behave the same?) & its current drivers] will continue to play the role we want it when we need it? We continue to believe so:
Geopolitical tensions remain elevated and as we continue to move through this multi-polar world, traditional safe haven assets like U.S. treasuries & U.S. dollar are no longer cutting it anymore (especially due to threats of sanctions). Gold remains the standout safe haven asset for global investors. Last night we presented at CMC Markets investor evening and it was noted that demand out of the Middle East for the precious metal is very strong. So in our view it remains a genuine diversifier as it stands today. We assure you everyday we are looking for an alternative for our own strategies and will continue to bring those to clients as we see the opportunities (just like we did with gold 3+ years ago).
Following on from point one, global central banks continue to be buyers of gold and we think this remains very supportive of gold. If you just take a rational approach to it – whether you agree or disagree with the U.S. administration – why would any sovereign nation want to have all of its assets in USD and U.S. Treasuries when sanctions are a constant threat?
Our view is that the U.S. dollar over the long-run is trending lower, this should be good for gold prices.
Inflation remains a threat in our view (also why we are not big fans of duration at the moment). Our view was validated just overnight…from our morning report this morning – U.S. wholesale inflation accelerated in July by the most in 3-years with PPI increasing +0.9% MoM (+3.3% y/y), the largest advance since consumer inflation peaked in June 2022, with services costs increasing +1.1%, the most since March 2022.
The above view has not changed for the past 3+ years and we must say we have been banging the table on gold for the last 3-5 years, consistently saying we expect the gold price to go towards US$3,500 (vs when it was trading around the $1,900 level). It is close to approaching our target, currently around $3,340.
The push back from clients was “clients don’t like it because it doesn’t pay a dividend” or cash flows. Completely valid but respectfully I think that completely missed the more important points we raised above. The GOLD ETF (which is what we use) has done +26% p.a. over the past 3 years – beating U.S. equities and S&P/ASX 200 (AUD terms).
U.S. Treasury Secretary Scott Bessent recent interview on FOX Business.
It is worth listening to as it highlights some of the thinking & strategies being considered by the U.S. administration. As per the explicit comments from Mr Bessent, the U.S. administration is considering a strategy of “offshore appropriation”. In his words – the strategy will effectively see other countries “in essence providing us [U.S.] with a sovereign wealth fund” and the U.S. President will direct these funds at his discretion. They called out Japan, South Korea and by extension Europe. If you like, you can start the video from 9:35 to skip to the part we are referring to.
Link: https://www.youtube.com/watch?v=IgcmRJpE1pc
This has very interesting implications from a markets and geopolitics perspective. Wonder what the sovereigns called out in this interview think about this? How will they change their behaviour and investment of funds? That’s what we are interested in.
