David, Eoin or you have made the point a number of times that a key point in tracing the rising direction of gold was when rates of inflation were ahead of interest rates. Do you have a chart which gives a picture of this phenomena? Best regards,

David Fuller's view

Thanks for your interesting email. I do not have that chart at hand but we know that interest rates in most developed economies remain near record lows and that central banks are trying to increase inflation to 2%.

I think of gold as a non-yielding hedge investment in relatively short supply, with some unique properties including beauty, which have caused it to be regarded as ‘hard money’ throughout human history.  

Nevertheless, gold has to compete for attention in the international beauty contest with all other categories of investments.  The main, highly liquid rivals are fixed interest investments such as government or corporate bonds, and stock markets.  These generally provide yields which make them very attractive.    

To compete for investor support in this environment gold needs uncertainty.  Arguably, levels of uncertainty have increased this year with the Trump presidency, Brexit negotiations and the likely unravelling of the European Union.  Additionally, should the Trump presidency provide more GDP growth than uncertainty, that could also support gold by increasing inflationary pressures. 

Nevertheless, investors in the yellow should be prepared for a choppy ride, at least in terms of gold quoted in USD.  The US Federal Reserve is talking about 75-basis points of interest rate hikes this year.  This will certainly not be matched by the European Union, Japan or perhaps any other developed counties in 2017.  Therefore these rate hikes and an appreciating US Dollar Index will be headwinds for the gold price.