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Topical Research – Gold Market Trends

- January 31, 2023

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SECULAR TRENDS

GROWTH CHARTS

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

Gold miners have outperformed most asset classes since stocks bottomed in mid October, suggesting a short-term correction would not be unusual

RETURNS FROM KEY DATES

Near term risks of a correction given gold has been the third best performing asset class, trailing only midstream energy and commodity futures, since markets peaked in January last year

U.S. STOCKS-TO-GOLD RATIO

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

U.S. STOCKS VS. GOLD

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

GOLD VS. MONETARY BASE

Assuming the price of gold tracks the money supply (per capita) over the long term implies expected returns over 6%

MARKET TRENDS

REAL RATES

Real yields (CPI), which historically have had a strong inverse correlation with the price of gold, are still deep in negative territory, albeit off the lows and trending higher

Based on TIPS-implied inflation, real yields have moved into positive territory

The recent move higher in gold may be explained by long-term real yields topping out as well as expectations that the Fed will pivot on short rates

RETURN BY CURRENCY

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

Gold has recently broken out to the upside against the GBP and the JPY, nearing breakouts in EUR, CNY, CAD; returns in USD less significant

RELATIVE PERFORMANCE

Priced in U.S. stocks, gold still looks cheap

MINERS VS. PHYSICAL

Gold miners still look relatively attractive vs. physical

GOLD SENTIMENT

Spec positioning in gold futures has increased modestly over recent months, but nowhere near stretched, suggesting recent rally may have legs

SILVER SENTIMENT

Spec positioning in silver futures has increased modestly over recent months, but nowhere near stretched, suggesting recent rally may have legs

PHYSICAL VS. FUTURES

Gold futures market has continued to move deeper into contango (which is normal), implying increased carry costs

GOLD-TO-SILVER RATIO

Despite recent rally, silver still appears attractively priced relative to gold

HISTORICAL CORRECTIONS

Gold's correction following the post-COVID rebound remains within the range of historical drawdowns that occurred within bull markets

STOCK MARKET DECLINES

Gold has had mixed, but generally positive, returns during stock market declines

SIGNIFICANT MARKET EVENTS

Gold has had 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

DISCLAIMER

Magnus Financial Group LLC (“Magnus”) did not produce and bears no responsibility for any part of this report whatsoever, including but not limited to any microeconomic views, inaccuracies or any errors or omissions. Research and data used in the presentation have come from third-party sources that Magnus has not independently verified presentation and the opinions expressed are not by Magnus or its employees and are current only as of the time made and are subject to change without notice.

This report may include estimates, projections or other forward-looking statements, however, due to numerous factors, actual events may differ substantially from those presented. The graphs and tables making up this report have been based on unaudited, third-party data and performance information provided to us by one or more commercial databases. Except for the historical information contained in this report, certain matters are forward looking statements or projections that are dependent upon risks and uncertainties, including but not limited to factors and considerations such as general market volatility, global economic risk, geopolitical risk, currency risk and other country-specific factors, fiscal and monetary policy, the level of interest rates, security-specific risks, and historical market segment or sector performance relationships as they relate to the business and economic cycle.

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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.