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Topical Research – Gold Market Trends

- February 22, 2022

GROWTH CHARTS

Gold has trailed stocks, but outpaced bonds for more than 50 years

RETURNS FROM KEY DATES

After strong returns out of the pandemic lows, gold has trailed since the vaccine announcements, only recently outperforming

U.S. STOCKS-TO-GOLD RATIO

U.S. large cap stocks-to-gold ratio for over 100 years

LONG-TERM TRENDS

Priced in gold, stocks are yet to regain Tech Bubble highs

MARKET TRENDS

Real yields, which historically have had a strong inverse correlation with the price of gold, are at the lowest level of the last 40 years...

...but the relationship between real yields and gold has broken down in recent months, possibly as investors look past the expended rate hike cycle

Despite the year-to-year volatility, longer-term returns have been surprisingly consistent across multiple currencies

The longer-term trend appears intact despite drawdown across several major currencies

Gold looks cheap relative to U.S. stocks and doesn’t look overbought/stretched relative to Treasuries

MINERS VS. PHYSICAL

Gold miners still look very cheap relative to bullion

Gold futures sentiment has recently picked up as the gold price has rebounded

Silver sentiment trending lower as prices make lower highs and lower lows

High demand for physical hints at increased perceived systemic risk

GOLD-TO-SILVER RATIO

No clear excesses in the price of gold relative to silver after epic extreme in pandemic liquidation

HISTORICAL CORRECTIONS

Assuming March was the low, the correction that ended last year was run-of-the-mill relative to historical bull market declines

STOCK MARKET DECLINES

Gold has had mixed, but generally positive returns during stock market declines; current environment confirming its value as a hedge

SIGNIFICANT MARKET EVENTS

Gold, however, has mixed historical returns during other significant market events

GOLD RETURNS DURING HIGH INFLATION

Gold has a decent track record as an inflation hedge, but it is by no means a portfolio panacea during these episodes

CASE STUDIES 1

STOCK MARKET DECLINES

Case study 1: gold returns during stock market declines

CASE STUDIES 2

SIGNIFICANT MARKET EVENTS

Case study 2: gold returns during significant market events

CASE STUDIES 3

RISING INFLATION

Case study 3: gold returns during periods of rising inflation

APPENDIX

ROLLING CORRELATIONS

CORRELATION MATRIX

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DEFINITIONS

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Intermediate-Term Muni Bonds: Bloomberg Barclays 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Intermediate-Term Bonds: Bloomberg Barclays U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg Barclays U.S. Corporate High Yield TR Index; U.S. Bank Loans: S&P/LSTA U.S. Leveraged Loan Index; Intl Developed Bonds: Bloomberg Barclays Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: JPMorgan EMBI Global Diversified TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg Barclays U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Barclays Global Aggregate Bond TR Index.