In a recent report, we analyzed six main gold cycles over the past 50 years. While these cycles are all different (duration, returns, or drivers), they tend to come with (or follow) an economic/financial shock or a geopolitical event, leading to higher uncertainty, with the USD embarking on sustained downtrends. Today’s cycle looks no different: the pandemic shock unleashed unprecedented monetary and fiscal stimulus (higher debt), and trade uncertainty is high, geopolitical tensions are elevated, and the USD is on a down trend. Historically, we have seen gold equities move before the precious metal (at an average leverage ratio of ~1.5:1), similar to today.
Investors’ primary concern is whether the gold rally is nearing an end. From a macro standpoint, we look at major traditional factors driving gold and note some key differences vs prior cycles, including central banks being major net buyers, the democratization of gold products, and investors remaining broadly underweight the space.
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