Patience has been needed as gold struggles this year
but outperforming most other asset classes. Gold should regain its luster as a
hedge, but what is required?  

Two catalysts: (1) Peak in real rates and (2) Peak in
the dollar which will likely when the US economy falters with recession likely
first half of next year.  Then federal reserve fund rate expectations will
peak likely boosting gold. Gold of course pays no carry. 

  

¡ Gold has been
impacted by the strong rise in real bond yields (10yr from -1% in March to
+1,57% on 29/9) and by the strength of the USD 

¡ Gold should regain
its luster as a hedge against stagflation risks when the real rates and strong
USD headwinds will abate. A declining economic momentum should be accompanied
by a weaker dollar and lower long-term bond yields. 

¡ EM central banks
have reiterated their intention to increase their gold reserves.   

¡ The post-COVID
recovery of the jewelry sector in China and India should also help. 

¡ From a LT
perspective, the huge increase in public debt could become unsustainable if
long term real rates increase above the real GDP growth rate. If as we expect,
economic growth weakens, real long-term rates will have to decline and that is
very bullish for gold.  

  

We still advise to keep a longer-term overweight
position in gold as it remains our preferred hedge against geopolitical,
economic and financial tail risks  

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