Investment Insights

Equity yields support gold as investors position for historical September strength

As the global economy emerges from an unprecedented shutdown, both policymakers and investors are operating in uncharted territory. To better understand investor strategies during this important transitional period, we interviewed approximately 500 institutional investors around the world about their portfolios, allocations and views on markets, gold and other individual asset classes.

Interest rates will likely remain key drivers of financial assets. Gold is no exception. Yet, the negative impact of higher rates will likely be offset by the longer lasting effects and unintended consequences of expansionary monetary and fiscal policies created to support the global economy. 

Inflation fears and momentum ignite gold

Gold registered healthy positive returns for the second consecutive month, erasing the losses accumulated during Q1. Gold ended May at US$1,899.95/oz – its highest level since January and back above its 200-day moving average – representing a 7.5% m-o-m increase.

The volatility of numerous assets has shifted along with the performance of gold, which has recently rebounded to nearly flat on the year. 

Inflation, falling yields and the US dollar pushed gold higher

Marking a turnaround from the first three months of the year, gold rebounded 4.5% in April to finish the month at US$1,768/oz - its highest monthly closing level since January and its first positive monthly return since December 2020.

After a strong 2020 performance where the price rallied 25% in US dollar terms in an environment where rates fell, gold has been much weaker during 2021, down 5% year-to-date with rising rates.

Inflation has emerged as a primary concern for investors. On balance, arguments for ‘uncomfortably high’ US inflation seem to outnumber those against, at least in the near term.

A sharp rise in US interest rates and a stronger dollar have weighed on gold recently. But a rebound in economic activity and a lower gold price have provided opportunities for consumers and strategic investors alike.

How gold’s role in a portfolio differs from cryptos