Investment Commentary

As we look forward to 2024, we explore three economic scenarios and their likely impact on gold. Historically, gold has had a flat performance during consensus-favoured ‘soft landings’; however, geopolitical risks, central bank buying and the spectre of a recession may provide additional support for gold.

Gold prices started the month on the backfoot, having fallen below US$1,850/oz at the end of September. The events in Israel on 7 October set a rally in motion that took the US dollar price back up above US$2,000/oz by 27 October. The record-high monthly finish was mirrored in almost all other major currencies

With the rapid growth in funding ratios over the past two years, an increasing number of UK defined benefit (DB) pension schemes have been contemplating their investment approach for the endgame – the point at which a plan moves from being underfunded to being fully funded or even having a surplus. This transition has a number of investment implications. In this paper, we examine how pension schemes can seek to maintain the ground they’ve gained over the recent past, as one of the driving forces behind the rise in interest rates and improved funding status – inflation – has become a source of asset price volatility.

Gold lost 3.7% in September, with the bulk of the move occurring during the last three days of the month. We attribute gold’s challenging month to an extensive run up in bond yields alongside a stronger dollar. The sell off at the end of the month was also likely the result of a strong adverse reaction to US economic data, a fall in the Chinese local premium and a negative technical breach.

The traditional Defined Contribution (DC) investment portfolio made up of equities and bonds has come under increasing pressure in the last 18 months. Faced with rising inflation volatility risks and a highly uncertain economic backdrop, could now be the time to reconsider traditional thinking? We believe investors would benefit from expanding their “safe havens” options by considering gold.

Gold declined marginally by 1% in August, in the face of higher yields and a stronger dollar. Sentiment remained weak for most of the month as ETFs continued to lose AUM while COMEX managed money net long futures positions fell to a five month low.

August has been a good month for gold returns over the past two decades, likely driven by seasonally weak bond yields and consumer sentiment, anticipation of seasonal equity volatility in September, and some gold restocking in India and China.

Gold, in Australian dollars (AUD), delivered positive returns in 2022 and this has continued so far in 2023. It has attracted attention: not only have global central banks continued to buy gold, but Australia’s sovereign wealth fund has also added gold to its portfolio.