RWC's Fenton: Why we have 25% in gold and precious metals now
Commodities thrive where currencies dived
Like many other assets, commodities have been on something of a journey this year, with parts of the complex seeing never before witnessed pricing.
While it seems like a different era, it was only back in April that we saw oil prices around the world turn negative as a glut of supply filled storage capacity near to its absolute limit.
Gold too has been volatile throughout 2020, but has come into its own in the second half of the year.
With central banks around the world now combining with governments to fight off the huge economic damage being wrought by Covid-19, currencies have weakened, with alternative stores of value - such as gold - benefiting.
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The trend peaked in August at the height of the pandemic when it broke through the $2,000 barrier, and it has since remained in a range between $1,800-$1,950.
With the US election uncertainty all but gone, and vaccine news providing hope that the virus can be defeated, some investors believe the need for safe havens has seemingly dropped away.
But in truth, the real driver of the gold price remains fully intact.
Governments and central banks continue to provide support
Central banks, harking back to the 1970s, are plainly serving as governments' bankers now, with the independence of the former from the latter increasingly questionable.
This independence has essentially been sacrificed to try to save economies, with obligation usurping prerogative. This is because in its over-financialised state, the global economy's stock of debt is simply too large for central banks to do anything but monetise deficits.
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On the other side of the ledger, the asset conundrum is worrisome too. Bank of America surmises that in the US, private sector financial assets are 6.2 times larger than GDP.
To put that in context, from the 1950s until the late 1990s, they hovered about half that multiple.
This asset-liability relationship also means that central banks have no other choice than to view asset bubbles with benign neglect.
The sustainability of the current fragile states of the economy and financial markets, what we call the overextended leverage phase, is dependent on central banks' ability to sustain easy financial conditions.
Their hand, collectively, is therefore forced, and any deviation from further support has already caused immediate ructions in markets this year.
In September, Federal Reserve chairman Jerome Powell delivered his press conference following September's Federal Open Market Committee meeting. It was extremely dovish in tone, but offered few specifics and emphasised the need for fiscal help.
Financial markets reacted as if he sounded hawkish, with shares tumbling, and it is as if keeping policy the same is now the new tightening.
For investors, this ongoing pressure on central banks to provide further support leads us to believe that there will be continued easing measures.
When you combine central banks' reaction function with governments' propensity to spend, inflation should follow.
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