All That Glitters

My first media interview was with MarketWatch in November of 2019 on a subject near and dear to my heart, gold. Gold’s mere mention is sure to elicit a host of strong responses in professional and non-professional investors alike. We tend to land in the more favorable camp in the great debate and believe that gold has a role to play in most investors’ portfolios. However, its role will often vary according to the economic backdrop.

This article took place in the midst of a consolidation following some strong gains in the summer of 2019 and prior to the explosive rally in the first half of last year.

As we sit today, gold sits in the midst of a more significant correction from its 2020, and all-time highs. While we maintain a favorable view on gold longer-term, the backdrop of what is likely to be a continued strong acceleration in growth and inflation globally will remain a headwind to gold. We believe this is in large part due to the rebound in interest rates which appear to be responding to the strong economic data just mentioned. This stands in sharp contrast to this 2019 article where the economy was already raising recessionary concerns prior to 2020, and interest rates were declining in response.

We think there’s a high probability that growth begins to decelerate as we move into the second half of 2021. The response of policy makers will be key, and we anticipate a swift response in defense of the fledgling recovery. This could put a new floor in the price of gold particularly if that response takes the form of attempting to suppress longer-term interest rates.

-Matthew Pierce, CFA