Recent months have seen an extraordinary move in gold and other precious metals.
It’s often said that markets can’t price geopolitics — but early 2026 is a reminder that sometimes they appear to.
We have recently been starting presentations to investors with a chart showing what seems to us, to be the biggest mystery in finance of the last year.
The market pricing of inflation hasn’t moved over the last 12 months, but this is in stark juxtaposition to the very strong return from gold, silver and platinum. We think that, in equilibrium, both of these cannot both be right. They suggest that some investors are pricing a different long run inflation outlook or indeed allocating for a new investment paradigm.
The recent pullback in gold doesn’t change that strategic view. What it does highlight is that the path won’t be smooth. We think there has been marked complacency with respect to gold.
The recent selloff reflects a mix of tactical factors: some easing of fears around central-bank independence, the appointment of a possibly more hawkish Fed chair, the partial unwinding of earlier geopolitical risk premia, for example over Greenland, and — importantly — the scale of recent investor demand relative to other demands for gold, making it vulnerable to pull-backs. When an asset rises in a near-straight line, it inevitably becomes part of momentum trades, and those trades reverse quickly when trends break.
But these are tactical dynamics. They don’t change the strategic case.
We have been positive on gold for many years, and we remain so today. Strategically, the case to hold gold as part of a non-fiat allocation is, in our view, unambiguous. This is a long-term call, grounded in what we see as a structural shift in the investment regime.
When we meet clients globally, gold now comes up in virtually every conversation — but actual allocations still vary dramatically. Family offices and some sovereign investors are comfortable holding meaningful positions. Pension funds, by contrast, are usually at zero. So, despite the increase in investor interest, there is still scope for institutional allocations to increase if people adopt a different inflation and geopolitical framing.
We should also be clear: we don’t have a price target for gold. That might ring alarm bells – a strategist is advocating an allocation without a valuation model! Gold has no cash flows, so it can’t be valued in the traditional sense. The old framework that compared gold to inflation-protected bonds broke down when Russia invaded Ukraine — and we see no reason for it to reassert itself.
So what is the case for owning gold?
For us, it’s not as a standalone trade, but as a strategic complement to equities and risk assets. Despite high valuations, we believe equities remain the most liquid real asset and essential for preserving purchasing power in a world of moderately higher equilibrium inflation.
Gold’s role is different. Its long-run correlation with equities is close to zero — and crucially, that is invariant to inflation regime. Bonds, by contrast, lose their diversifying properties as inflation rises. The negative stock-bond correlation investors relied on for decades was an historical anomaly in the longer course of history — and we don’t expect it to return.
Beyond diversification, there is an additional force of geopolitics. Trust has shifted in a way that can’t simply be reversed. The post-war assumption of a quasi-stable, US-led multilateral order is being challenged — and no one has a model for how to price that in markets.
We still defend the case for US exceptionalism when it comes to equities, but we think the dollar has likely reached “peak” status as a safe haven and probably its peak share of international transactions. One shouldn’t hold one’s breath. Changes in reserve currency status happen very slowly and perhaps the best defence of the dollar is the absence of any credible alternative. However, there is a need for BRICS nations to attempt to de-dollarise.
This implies that the ongoing return from gold will be above its low historical real return level. Thus from a correlation and return perspective gold can play a long term role in portfolios.
Tactically, though, there are real risks. Investors need to be very clear about this. Investor demand for gold has exceeded jewelry demand for 4 quarters — something we haven’t seen in decades. Retail participation is extremely high, and flows into gold ETFs have been very strong. Historically, that combination points to elevated short-term volatility and the risk of sharp pullbacks, such as we have seen in recent weeks.
We extend the logic of this broad argument to other non-fiat assets as well. We added silver last year, where, unlike gold, structural industrial demand — particularly from solar — matters more than investor buying. And we continue to see crypto as part of the same zero-duration, non-fiat theme, though with even greater uncertainty and no price target.
I wanted to close with two thoughts that we discuss in our note:
First, there is no such thing as a risk-free asset. That idea only works under very specific historical conditions — and history itself shows long periods where so-called risk-free assets delivered deeply negative real returns.
Second, over long enough horizons, all fiat currencies have lost value against gold — through war, revolution, or the steady accumulation of debt. That doesn’t tell us anything about next quarter’s performance. But it does make a powerful strategic case for holding non-fiat assets in portfolios.
So our concluding message is: the strategic case for gold is intact — but investors should expect a higher vol. strategic positions may need to be paired with an explicit recognition that volatility will be higher than it has been recently.
Thank you for your time.
