“You’re also seeing consumers buying more gold, if you recall Costco sold out of gold bars in the US this year. At the same time, people are holding it for normal reasons, because they’re worried about downturns in the economy or consumer weakness. There are so many different reasons people are holding gold, which has increased the opportunity dramatically.”
Adatia notes that gold’s outperformance against the S&P 500 goes back further than this bull run. When markets were down around 7 per cent by October of 2023, gold was up around 7 per cent. He still sees that defensive utility in gold, but adds that the asset has shown remarkable growth.
One of the driving forces behind interest in gold, despite the bull run in equities, is investor sentiment. Adatia believes that this is probably “the least loved bull market that we’ve seen.” That’s because of the concentrated momentum names driving US equities.
Investors who own the S&P 500 probably feel fine. Investors who allocated to those big momentum names probably feel great. But investors who sought broader-based exposures or looked at value stocks when momentum got expensive, are probably feeling a lot of regret. Gold’s recent run offers those more bearish investors a defensive asset class that appears to have some major tailwinds behind it. Though Adatia notes that he doesn’t expect gold to continue to outpace the S&P 500.
In the past month, for example, the pace of gold’s price increase slowed somewhat. Adatia attributes that largely to a pause in gold purchases by the People’s Bank of China. He also says that as more economic data emerge in the US and Canada that could support interest rate cuts, those more bearish investors may seek to diversify away from gold. Nevertheless, Adatia thinks that gold can continue to move higher and functions as a hedge against both delayed interest rate cuts or resurgent inflation.
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