Page 27 - Bullion World Volume 4 Issue 1 January 2024

Bullion World | Volume 4 | Issue 1 | January 2024

Source: Bloomberg, Baker Steel Capital Managers LLP. Data at 31 October 2023.

Alongside the benefits of steady or falling nominal all-time high and gold miners rallying 17% during March
and real interest rates for the gold sector, we consider 2023 alone (MSCI ACWI Select Gold Miners Index, in
that the rising economic risk for the US and globally, USD terms).
amid higher borrowing costs and lacklustre growth, is
supportive for higher gold prices. While policymakers Gold has tended to perform well during periods of
stick to the “soft landing” narrative, history shows that economic crisis and geopolitical turmoil, fulfilling
economic and financial conditions can change quickly. its role as a safe haven investment. Economic risks
The full impact of the 5.25% of hikes enacted by the US aside, undoubtedly the world remains in a situation
Fed since early 2022 has likely not yet fed through to the of significantly heightened geopolitical tensions, with
real economy, and as a result we consider the probability Russia’s war in Ukraine nearing the end of its second
of further difficulties for the US economy is substantial. year, Israel’s conflict with Hamas in Gaza threatening
The collapse of Silicon Valley Bank and two other mid- to escalate into a regional crisis in the Middle East, and
sized lenders in early 2023, which threatened contagion continued tension between the US and China across a
across the financial system, highlighted how swiftly crises range of flashpoints such as trade, supply chains, and
can develop. Notably gold and gold equities reacted Taiwan.
positively to the banking crisis, with gold re-testing its

What would de-dollarisation mean for gold?

A key headwind for the gold price has been the surge in global events of the past few years which saw economies
US dollar strength over the past three years to a twenty impacted by the COVID pandemic, war in Europe, the
year high. A strong dollar is typically a negative factor fight against climate change, as well as the return of
for gold and silver which are priced primarily in US dollar inflation. There are however signs this dynamic may be
terms, as is the case for most commodity markets. starting to shift.
Recent rises in the US dollar can largely be attributed
to the relative strength of the US economy compared
to much of the rest of the world, amid the tumultuous

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