Can We Talk about Gold?

News recently broke that Warren Buffet invested in Canadian mining firm Barrick Gold and the price of the shiny metal has risen more than +30% over the past year.

So let’s take a minute and talk about Gold. Typically the two things that move the price of Gold are fear and inflation. We can see how fear could have driven up the price of late, but how is it continuing to rise as fear is (relatively) receding around the world? The latter reason has been cited. Due to the historically massive amount of stimulus and money printing around the world, there is widespread speculation that we stand on the precipice of a higher inflationary era.

We have been here before, the price of gold spiked in the wake of 2008 mostly in response to the then historic stimulus measures (that pale in comparison to our more recent ones) sparking fears of impending hyper-inflation. No inflation materialized, in fact even the opposite, inflation disappeared, confounding some economist and causing Gold prices to plummet -50% in middle of last decade.

Will we see another abdication of the old economic inflation models and gold will fall again or is the wave of new money just too big this time? Inflation is a risk worth paying attention to and maybe even hedging against (particularly if you are in low yielding bonds) but it is by no means a guaranteed reservation so it pays to be flexible and on top of current economics (which we plan to remain).

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