Regular readers know I’m no fan of gold – “paper” or otherwise.
Simply put: it’s useless. It has value only because mankind believes it does and theoretically, it could lose its luster (figuratively) overnight if, for whatever reason, everyone collectively came to the conclusion that some other finite thing that can be hoarded is preferable as a “store of value.”
With apologies to anyone who has dedicated their life to the study of gold as a timeless inflation hedge/safe haven/doomsday stalwart, that’s just all there is to this debate (don’t @ me).
But, in the meantime (i.e., between now and the day when everyone decides that some other finite physical thing is prettier than yellow doorstops), we’ll all pretend that gold has value and as long as that lie is treated as gospel, gold analysis will still generate interest (even if gold itself doesn’t – get it?).
And so, on Thursday, everyone will presumably write about Goldman raising their price target on gold to $1325, $1375 and $1425 over 3, 6 and 12 months versus previous forecasts of $1250/toz, $1300/toz and $1350, respectively. In case you can’t figure out what that might look like if you plotted those three price points as grey squares on a chart, here’s a visual:
So there’s that and here’s this, where “this” is gold (in the top pane) gold’s monthly performance versus the S&P in the middle and gold ETF holdings in the bottom pane:
As noted last month, gold performed well late last year despite a steady dollar (this was before the bottom fell out for the greenback) and resilient real rates. That’s a testament to the notion that the “inverse real yields play” doesn’t always apply late in the hiking cycle when, to quote the President, “the outside world is blowing up around us”.
Don’t forget the following chart from a December 3 Goldman note:
The bank’s Jeff Currie reiterates that on Thursday. “As we have been arguing for some time now, gold’s performance is not being strictly driven by US real rates (or USD) but rather, we find that as the hiking cycles matures, the usual (negative) correlations between these indicators and gold starts to weaken, or even turn negative”, he writes, before again flagging the obvious rationale which is that in environments where rising real rates are sapping demand for risk and rate hikes are stoking fears of a downturn, “gold begins to price much more off fear of the next recession than off the opportunity cost of holding gold, or the purchasing power of investors / EM households.”
That, Currie says, will the predominant driver going forward. To wit:
As such, we continue to believe that going forward gold will be supported primarily by growing demand for defensive assets, with a slower pace of Fed rate hikes in 2019 boosting demand only marginally. In addition, we note that the same is also true of central bank buying, with rising geopolitical tensions incentivizing more central banks to re-enter the gold market.
You can take that for what it’s worth which, I guess, is it’s “weight in gold” – or not.