Markets in 3 Minutes: Gold's Exceptional Run May Be Over

Watch Markets in 3 Minutes: Gold's Exceptional Run May Be Over - Bloomberg on Dailymotion

Transcript

00:00Ben, I say let's move on because I want to go back to one of our other stories this morning,

00:03which is around money going into havens, money going into oil as a result of other U.S. media

00:08talking about what could happen between Israel and Iran. And the gold price has jumped on the

00:13back of that. It's traded as a haven. But you argued this morning that gold's outperformance,

00:18its days of outperformance are over. Give us the back story.

00:21Well, our backstory starts really from the third quarter of 2022, Anna. So since then,

00:30around then, gold was at $1,600 an ounce. Now it's $3,200 and doing something. So gold prices have

00:37nearly doubled in a span of two and a half years. That is a compounded annual return of 28% using the

00:45rule of 72. So that is well above what other risk assets have yielded, the S&P, the NASDAQ even.

00:55So the Sharpe ratio is very high because gold has not only gone up, but it has gone down. The

01:02drawdowns between the rally have been very little. So which means that the Sharpe ratio, which are just

01:08for the risk, the volatility risk is pretty high. And therefore, gold has had an exceptional run

01:14now. The question is, how long does this run continue? It can't be that an investment keeps

01:20returning 28% annual compounded. No one can replicate that performance. Even Warren Buffett

01:27would be happy with 15% compounded return. So 28% is way above everything else. So that puts it in

01:34perspective. Now, if you look at gold in the long run, what has it returned? It has returned

01:40inflation plus about 2%. So that is in a world of about two and a half percent inflation. That is

01:47about four and a half percent. So at the moment, as we discussed, it's going at 28%. It's not

01:53sustainable. So there's going to be drawdowns. At the moment, as you mentioned, there's risk

01:58supportive. There's supportive environment for gold because of Israel threatening to attack Iran and all

02:04these geopolitical factors. So I think that gold has some momentum going into this rally. And

02:11therefore, I think that the rally can extend in the short term. So we are talking about levels of

02:16about 3,600, 3,700 even. But after that, I think investors should brace for drawdowns. And those

02:24drawdowns, when they come, they can be vicious. In 2012, gold plummeted like a stone. And gold has that

02:32property, intrinsic property, where it is overbought for extended periods, but it's also unloved for

02:38extended periods. So that may well repeat itself, which is why I think that, you know, turning, I'm not

02:46long-term bullish on gold.

02:49Van, I've got 30 seconds left. Everybody else is worried about deficit spending, government spending too much.

02:55That's not the case for Germany. Where does that safe haven story show up in Germany?

03:02Well, it shows up in boons and in 30-year bonds. If you look at 30-year bonds, they've done nothing at all this quarter,

03:10whereas yields have surged in JGBs, yields have surged in treasuries, and also 10-year boons. And so, you know,

03:17the ECB is going to cut rates, inflation is already under control, and you get a 230 basis point pickup from

03:23hedging the currency risk on boons. Therefore, what's not to like boons?