Emerging forces driving the price of gold and their implications for your portfolio
Despite the apparent breakdown in the precious metal’s negative relationship with real yields, its diversification benefits remain persuasive.
Profily autorov
The gold market has evolved substantially as speculative investors have become the dominant force driving market dynamics over the past two decades. This has created an opportunity to allocate to gold as long-term returns appear compelling.
That said, gold has become more complicated over the past two years. Numerous factors based around the geopolitical fallout over the Russia/Ukraine war have increased demand for gold, additionally economic weakness in China has also pushed investors into gold.
These forces have tested the negative correlation between gold and real yields that has been in place over the past 15-20 years and by-in-large driven gold prices higher (see chart, below).
But in the future these forces may drive prices down rather than just up, for example should geopolitical tensions thaw or economic activity in China turn around.
Nevertheless, the case for owning gold as a diversified source of returns in a multi-asset portfolio remains highly persuasive. Whilst the events of the past two years mean we cannot reliably see gold as a hedge to other asset classes, the precious metal has proven to produce strong returns which are somewhat uncorrelated to other markets. That in itself produces a strong case for allocating to gold within a multi-asset framework.
The full article is available as a PDF here.
Profily autorov
Témy