Notwithstanding its 35% rally in Sterling terms since the start of 2024 we continue to like gold as both a return seeking asset and a diversifier with defensive properties.
In the US we are seeing an aggressive policy pivot to embrace a strongly reflationary fiscal and monetary policy stance. With real rates likely to fall significantly over the next 12-18 months reflecting further US rate cuts and sticky inflation we anticipate a continuation of last year’s favourable macroeconomic tailwinds for the precious metal.
Elsewhere the creeping bearishness of fiat currency which has manifested itself in the strong run up in Bitcoin and other cryptocurrencies remains another positive driver of the gold price. The US has been running a current account of roughly 4% GDP for some time now and long-term estimates of Debt/GDP under Trump are as high as 140%.
Against this background, and notwithstanding the market’s current confidence in the US Dollar, we feel that we are entering a world where the fear of currency debasement will see investors (including central banks) increasing favour “hard” currency over what are effectively paper promises.
Finally, and on a much more basic level, we have entered a year which is likely to be characterised by elevated US driven macro policy and geopolitical uncertainty, again another reason to hold gold.
The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.
