Gold’s Awakening May Make Investors Restless

Gold’s Awakening May Make Investors Restless

Gold has been quietly outperforming stocks for the last three months, an event that hasn’t happened in 50 years, reports an article in Barron’s that cites research data from Strategas Research Partners. The precious metal is up 14.6% as of mid-January, compared to 11.8% from the S&P 500. The research highlights a number of policies and political challenges that are good for gold as part of the reason behind the surge, including the possibility of a lengthy debt-ceiling fight in Congress as well as further rate hikes by the Fed as inflation cools down.

While some, such as Paul Krugman, believe gold’s resurgence is due to a revolt against cryptocurrencies, the latter is up 29.2% this year, a much bigger gain than the 4.7% in stocks. With gold rising for 5 straight weeks and 10 out of the last 12 weeks, a mere disdain for crypto wouldn’t explain that resurgence. The precious metal is also getting a boost from global factors, such as the growing uncertainty in the dollar’s top spot, especially with Saudi Arabia now willing to settle oil trades in different currencies, and the continuing risk factor of the war in Ukraine, the article maintains.

Dan Clifton of Strategas Research Partners’ Washington policy desk views gold as a barometer for monetary policy, and whether it is too constricted or too loose in relation to inflation. When inflation was surging in early 2022, gold prices dropped because investors expected—correctly—that the Fed would turn hawkish. Now that inflation is beginning to cool, gold is rising as investors anticipate looser policies from the central bank as well as more inflation to come. Fed-funds futures are now factoring in a quarter-point hike in March, with rates peaking at 4.75% to 5% before they start to cut later in the year. The steep drop seen in bond yields backs up those expectations. But gold’s awakening, and its message of persistent inflation, would seem to indicate that the market is less bullish on equities, the article concludes.


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