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Asset management and fund structuring boutique

No magical formula

Apr 18, 2024

The gold price has historically been inversely correlated to real interest rates, namely inflation adjusted interest rates. The reason: in periods of ramping inflation and low interest rates, gold is a safe haven to protect against loss of purchasing power. The problem: the textbook relationship has completely broken down over the last 2 years as gold prices and real interest rates are now increasing in parallel. This is another example that there is no magical formula to forecast the future performance of gold in the same way there is, at least to our knowledge, no magical formula to convert lead into gold. So what is driving the gold price ? We understand central banks are buying to partially replace the USD as a reserve currency and many investors use gold as a hedge in their portfolios against geopolitical risks and hyperinflation in case of monetary policy mistakes by central banks. Do not hesitate to contact us in case to discuss the use of gold in portfolio construction in more detail.

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