We discuss the outlook for the precious metal.

  • The weakening of the US dollar is a significant tailwind for gold.
  • A greater appetite to tolerate a structurally higher level of inflation also represents a clear opportunity for gold to shine.
  • In the context of an unconstrained, multi-asset strategy, we believe gold can serve to cushion a portfolio against a variety of risks.

After its steep ascent in July and August, gold is taking breathing space, with price weakness in November triggered by the desire by investors to liquidate safe-haven assets on positive vaccine news, and in the face of further evidence that the global economy is continuing to heal. Looking at the year as a whole, there has been a significant increase in demand for the precious metal as we have been keenly reminded of the speed at which ‘black swan’ events can strike. This has been characterized by a further broadening out of the investor base, ranging from sovereign wealth funds to retail investors.

With the potential for bond yields to drift gently higher, we see the biggest risk to gold as being its inverse relationship with real interest rates. However, given unprecedented government debt burdens, authorities are likely to step in to ensure that any uptick in bond yields is relatively benign. While yield-curve control is one of the likely tools to be employed, this will have the effect of slowing the steepening of the yield curve, rather than arresting it altogether.

Perhaps the more significant tailwind for gold is likely to be the weakening of the US dollar, which is in structural decline owing to a number of factors including a diminishing yield advantage, twin fiscal and current account deficits, and the longer-term trend of the ‘de-dollarization’ of global reserves. Moreover, the potential for softer US economic data, as the fallout from the pandemic hits the real economy, provides further fuel.

We are still at an early stage of the economic cycle, with the potential for inflation to rise from depressed levels. Indeed, as shown by the recent pronouncement by the Federal Reserve, there is greater appetite to tolerate a structurally higher level of inflation, representing a clear opportunity for gold to shine. As we have seen from the fiscal policies put in place which currently eclipse the amount of monetary stimulus employed, central banks and governments have been short of traditional ammunition to counter this crisis, and what seemed like a previously implausible scenario – the government shoring up vast swathes of industries and even deploying ‘helicopter money’ – has become a reality. We believe such measures are likely, naturally, to accelerate the return of inflation from current depressed levels. 

In short, despite a fast-evolving backdrop and the existence of conflicting deflationary and inflationary forces, we think the latter look set to take more of a center-stage role once the economy gets back on its feet. The severe blow to the global economy from the pandemic means that central banks and governments will remain supportive, and generous levels of stimulus should help to ensure that the recovery remains on track. We believe this has a positive read-across for gold, which we see as having a time-tested role as an effective hedge against monetary inflation or debasement.

In the context of an unconstrained, multi-asset strategy, we believe gold can serve to cushion a portfolio against a variety of risks. To us, the attraction of the precious metal is precisely that it can play a role as an effective hedge in a range of scenarios, although there are periods where its price performance may languish and there may be more effective tools that can be used. Given the current conditions outlined above, in which unprecedented levels of monetary and fiscal stimulus have been deployed, it is plausible that gold could see its relevance to portfolios reaffirmed in the months and years ahead.


Catherine Doyle

Catherine Doyle

Investment specialist


Your email address will not be published.

Newton does not capture and store any personal information about an individual who accesses this blog, except where he or she volunteers such information, whether via email, an electronic form or other means. Where personal information is supplied, it will be used only in relation to this blog, and will not be collected or stored for any other purpose. Comments submitted via the blog are moderated, and, as a result, there may be a delay before they are posted.

Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell this security, country or sector. Please note that strategy holdings and positioning are subject to change without notice. Where the portfolio has exposure to hedge funds, gold, private equity and property via publicly quoted transferable securities, there are additional risks associated with these sectors.

Important information

This is a financial promotion. Issued by Newton Investment Management Limited, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Newton Investment Management Limited is authorized and regulated by the Financial Conduct Authority, 12 Endeavour Square, London, E20 1JN and is a subsidiary of The Bank of New York Mellon Corporation. 'Newton' and/or 'Newton Investment Management' brand refers to Newton Investment Management Limited. Newton is registered in England No. 01371973. VAT registration number GB: 577 7181 95. Newton is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940. Newton's investment business is described in Form ADV, Part 1 and 2, which can be obtained from the SEC.gov website or obtained upon request. Material in this publication is for general information only. The opinions expressed in this document are those of Newton and should not be construed as investment advice or recommendations for any purchase or sale of any specific security or commodity. Certain information contained herein is based on outside sources believed to be reliable, but its accuracy is not guaranteed. You should consult your advisor to determine whether any particular investment strategy is appropriate. This material is for institutional investors only.

Personnel of certain of our BNY Mellon affiliates may act as: (i) registered representatives of BNY Mellon Securities Corporation (in its capacity as a registered broker-dealer) to offer securities, (ii) officers of the Bank of New York Mellon (a New York chartered bank) to offer bank-maintained collective investment funds, and (iii) Associated Persons of BNY Mellon Securities Corporation (in its capacity as a registered investment adviser) to offer separately managed accounts managed by BNY Mellon Investment Management firms, including Newton and (iv) representatives of Newton Americas, a Division of BNY Mellon Securities Corporation, U.S. Distributor of Newton Investment Management Limited.

Unless you are notified to the contrary, the products and services mentioned are not insured by the FDIC (or by any governmental entity) and are not guaranteed by or obligations of The Bank of New York or any of its affiliates. The Bank of New York assumes no responsibility for the accuracy or completeness of the above data and disclaims all expressed or implied warranties in connection therewith. © 2020 The Bank of New York Company, Inc. All rights reserved.

In Canada, Newton Investment Management Limited is availing itself of the International Adviser Exemption (IAE) in the following Provinces: Alberta, British Columbia, Ontario and Quebec and the foreign commodity trading advisor exemption in Ontario. The IAE is in compliance with National Instrument 31-103, Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Explore topics