LAWRIE WILLIAMS: Gold far better performer ytd than equities or bitcoin

Investors in gold could be forgiven for regretting their decision given the yellow metal’s apparently fairly dismal price performance over the past few weeks and months, but consider this:  Year to date gold has performed enormously better than most other asset classes.  See the table below to view gold’s price performance so far this year in comparison with key U.S. stock market indexes and the bitcoin (BTC) price.  This trend will mostly be matched in other global markets too.

Table:  Price/Index movements Jan 2 2022 – Aug 29 2022

Source: Yahoo Finance, Bullionvault.com

It is always a little invidious to pick a specific point in time to make such comparisons.  For example over the same period, silver has performed worse in percentage price terms than even the Dow and S&P, while the oil price has  performed positively even though it has fallen back sharply in recent weeks.  However we have picked the above in part because we are convinced that equities will remain on a downwards path, as the world and the U.S. economies fall deeper into recession while, in our view, there is an excellent chance that the gold price will move well into positive territory before the year end and maybe will drag silver up with it too, although the latter has a lot of ground to make up.

It is a holiday in the UK today, so perhaps European price movements will not be as representative as they might be normally.  Yet the early trend has seen the gold price fall back a little further, while overnight Asian equity indexes followed their U.S. counterparts down strongly.  European equities also opened weaker across the board as the likelihood of global recession strengthened.  One doubts that any of this week’s data announcements will lead to a recovery, although the strength of Friday’s U.S. market falls may lead to a small knee-jerk recovery when markets there openEven so, some commentators think that the worst for general equity markets is yet to come with predictions that they could fall by another 50%.   And as for bitcoin, expect another severe squeeze as discretionary investment income dries up in what is looking as though it might be a quite severe recession.

We have been anticipating that there could be a sharp impact on North American markets in any case once people are fully back at work after the holiday season is over – the U.S. Labor Day holiday at the beginning of September is seen as the season-end there.  Once this happens we think equity markets and bitcoin will remain downbeat as evidence of a U.S. recession increases.  Inflation, even if it has peaked, will remain a concern which could be positive for gold, which is seen as something of an inflation hedge, although high U.S. interest rates, if they continue, could serve as a counterbalance here. 

Eyes will be on the Consumer Price Index (CPI) data for August, due to be announced on September 13^th, which will be an excellent indicator of an inflation peak, or otherwise, but one will need to look at the core level in particular to make a judgement.  As the year progresses, the year-on-year rate is certain to come down anyway, as overall inflation rates were already beginning to rise sharply in the final few months of 2021.  Bullish commentators tend to seize on differences in the year-on-year figures to make their case, but this can be very misleading.  It has to be the core inflation level that should set the tone.

29 Aug 2022 | Categories: Gold, Dollar, US, Bitcoin, inflation, UK

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