Australian investors are de-risking: bonds en vogue, but gold never goes out of style

Amid economic uncertainty Australian investors have, so far this year, been reallocating to fixed income assets. Although currently attractive, persistent inflationary pressure can bring risks to both the growth outlook and return for these assets. Gold should be considered as a long-term strategic asset alongside bonds as it provides excellent returns in a wide range of economic scenarios.

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How does gold respond when US credit spreads widen?

Authored by Johan Palmberg and Adam Perlaky: 

  • Gold tends to rally when credit spreads widen…
  • …but that’s usually the case when the move in credit spreads is driven by broader systemic risks
  • US spreads have only recently begun to widen. Should this environment of higher inflation and geopolitical tension draw itself out, widening spreads are likely to signal further support to gold

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Stagflation strikes back

Authored by Krishan Gopaul and Johan Palmberg

  • The risk of stagflation has increased materially since we addressed the topic last year
  • Europe appears to be at greater risk than the US, due to higher exposure to soaring commodity prices and a weaker economic position, but alarm bells could soon ring across the Atlantic, too
  • Year-to-date, gold has performed well, arguably reflecting the Ukraine crisis and the ongoing reflationary environment
  • But should stagflation become widespread it could provide further support for gold as a diversifier and risk hedge

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Stocks go down, bonds go... down?

Authored by Louise Street and Johan Palmberg: The conventional wisdom that stocks and bonds are negatively correlated is a central component of most asset allocation strategies. But the correlation hasn’t always been negative – far from it, in fact – and there are increasing signs of strain in the relationship, prompting investors to ask: could the stock-bond correlation flip? In this blog, we consider that possibility, what it might mean for the average portfolio, and how gold could help to protect portfolio performance.

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