Insights

As inflation continues to bite, the risk of stagflation has not disappeared.  As a reaction, gold has been attracting attention from Australian investors due to its historical superior returns during such periods.

The international gold price shot up by 3% in December to US$1,812/oz, supported by expectations of a less-hawkish US Fed in the light of lower yields and dollar weakness.

Many of the investors we talk to feel that gold’s performance should be much stronger considering multi-decade high inflation across the world

James Grant, noted economic expert and Founder and Editor of Grant’s Interest Rate Observer, joined us to share timely insights on key topics. Watch the conversation! 

Authored by Krishan Gopaul and Johan Palmberg

• The risk of stagflation has increased materially since we addressed the topic last year
• Europe appears to be at greater risk than the US, due to higher exposure to soaring commodity prices and a weaker economic position, but alarm bells could soon ring across the Atlantic, too
• Year-to-date, gold has performed well, arguably reflecting the Ukraine crisis and the ongoing reflationary environment
• But should stagflation become widespread it could provide further support for gold as a diversifier and risk hedge

With annual production of around 100 tonnes, Uzbekistan is one of the leading producers of gold worldwide. Gold also has a fundamental role to play within the Uzbek economy, as Bobir Abubakirov, Deputy Governor of the Central Bank of Uzbekistan explains.

The September edition of Bank of America’s bellwether Global Fund Manager Survey highlights a growing disconnect between fund managers’ expectations and their positioning: funds remain heavily overweight equities despite increasing pessimism over global economic prospects.

During a virtual round table, in partnership with European Pensions, a panel of industry experts consider the medium and long-term prospects for inflation, its potential impact on portfolios and the hedging tools available for pension funds to prepare for whatever the future may hold.

Between 23:30 and 23:45 BST 17,538 contracts traded on Comex, low was $1677.90. Between 23:45 to Midnight a further 7,825 contracts traded and 5,705 in the 15 minutes that followed...

The Shanghai-London gold price spread again turned negative in June after being positive since early 2021, falling to -US$6.7/oz on 2 June and remaining negative most days during the month.

Gold’s price has dropped by almost 7% since the end of May. Most of the move can be attributed to an increase in interest rates following last week’s US Federal Reserve (Fed) FOMC meeting. Gold’s reaction is not surprising given that it has experienced higher sensitivity to interest rates over the past year

There has recently been a lot of discussion and debate around the possible similarities and differences of gold and Bitcoin (and, by implication, other cryptocurrencies), and this has often included consideration of their relative environmental impacts and, specifically, their carbon footprints.

Listen to this podcast ‘Back to the gold fold’ for topics including US real rates, gold demand trends in consumer and investment markets, the COMEX market dislocation and the differences between gold and cryptocurrencies

Investor confidence in Germany recently jumped to a 21-year high, cheered by an acceleration of the domestic coronavirus vaccine programme and concomitant slowing of the domestic third wave of coronavirus. But while optimism for an economic upturn runs high, it brings with it growing fears of rising prices among inflation-wary German investors.

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. Given this shift, we consider it important to assess the current gold market conditions from a volatility and derivatives perspective, along with what technical charts are suggesting about where gold could move in the near- and long-term. We believe that regardless of an investor’s gold sentiment, the following conditions are present and create an opportunity:

Net Managed Money positions in Comex gold futures increased again last week, although positions remain modest compared to highs seen in 2016 and 2019.

With inflation and interest rates increasingly top of mind for investors, the World Gold Council, in partnership with State Street Global Advisors, invited renowned financial author and historian James Grant of Grant’s Interest Rate Observer to share his perspectives on the direction of monetary policy and implications for gold and the broader markets.

Is the current commodity rally just another reflationary episode or something more pervasive? Recent market moves in commodities rank in the top 5% of six-month moves since 1971. Gold's weak performance so far is consistent with previous reflationary episodes – its time to shine may yet come.

In historical periods of economic contraction and low rates, gold has generated relatively attractive returns compared to stocks and bonds, and improved risk-adjusted returns for Australian investors.

Interest rates have been a key driver for gold in both 2020 and 2021. As interest rates have moved higher, the gold price has decreased… but higher inflation expectations may provide some support for gold.