Gold is Back

4.16.24 - 

Gold is back - and it has a message for us -Financial Times

It's easy to mock gold bugs, but their moment may finally have come. The precious metal has been breaking out recently amid higher than expected inflation in the US, and general anxiety over everything from geopolitics to the November presidential elections to where monetary policy and markets go from here.

All these things are predictable reasons for gold to surge. But there are deeper, longer-term messages in this rise that investors should pay very close attention to.

Let's start with inflation. Whatever happens over the next few quarters, I've long thought that we were in for a period of "higher for longer" inflation. Aside from the possibility of a technology-driven productivity miracle, it's hard to think of a macro-trend at the moment that isn't inflationary.

The economy is running hot - from fiscal stimulus in the US to more supply chain redundancy as countries de-risk, to all the capital investment required for the clean energy transition and re-industrialisation in rich countries. Even ageing US baby boomers are likely to be an inflationary force, since they have health, time and plenty of money to spend.

Gold is historically an inflation hedge. But it's also something investors turn to when they are worried about the stability of the status quo. It will languish for decades, then break out when the world is at a major pivot point, as it is now.