Understanding the gold price rollercoaster

ON GOLD

Boosted by central bank largesse and negative real rates of the key reserve currencies, global markets continue their inexorable rise to new highs. Bulls argue that valuations for international large caps are low by historical standards, balance sheets are strong and dividend yields are attractive.

The bears point to the disconnect between equity valuations and the state of the global economy; France is in a recession, Italy has been contracting for seven consecutive quarters and Germany just narrowly avoided a technical recession with first quarter GDP growth of only 0.1%. Even though the US shows some nascent signs of strength, the contrast in investor outlook towards North America and Europe reminds me of the ‘the greater fool game’ – keep buying something that goes up in the hope that some other fool will pay more for it. As the equity bulls appear to be winning, traditional...