Monthly Review – August 2024
OUR PERSPECTIVE
“WE HAVE GOLD BECAUSE WE CANNOT TRUST GOVERNMENTS.” ~ Franklin D Roosevelt, 32nd President of the United States
Precious Metals, such as Gold and Silver, are weighed in Troy ounces, with 1 Troy Ounce equal to 31.1 grams. Everything else is weighed in normal ounces, aka Avoirdupois Ounces, with 1 ounce equal to 28.3 grams.
We really like gold. We like its durability, scarcity value and shiny appearance. We especially like the price. We like the price not because its high…but because it is going higher. 400 ounces packed into a shiny brick, aka a gold bar ‘Good for Delivery’, is now $1 million and will get more expensive over time.
Bizarrely, western investors have been consistent net sellers of gold since interest rates started going up in 2022. But despite this waning interest in the West, demand for gold remains robust, particularly among central banks and emerging markets. This demand surge is partly driven by fears of de-dollarization, especially in the wake of Western sanctions against Russia, which have heightened concerns about the U.S. dollar’s reliability as a reserve currency. Central banks in emerging economies are increasingly turning to gold as a hedge against geopolitical and economic instability.
But it is not a recent phenomenon. Since the end of the gold standard and Bretton Woods, our economic and social experience has been dominated by sanguine inflation and relative stability. In the absence of economic uncertainty, hyperinflation, and geopolitical risks, why own gold? A recent survey revealed that 75% of advisors had allocated less than 1% of their portfolios to gold, with only a small fraction considering increasing their exposure.
The correlation between gold and real yields has also shown unusual patterns. Traditionally, rising real yields would put pressure on gold prices. However, despite a surge in real yields in recent years, gold prices have remained resilient. This anomaly can in part be attributed to the sovereign dynamics referred to above, but the broader macroeconomic environment and growing expectations of financial repression has also played a part. Financial repression, characterised by low or negative real interest rates and capital controls, is seen as a likely strategy for managing the escalating burden of government debt in an era of shifting demographics and fiscal dominance.
As western central banks begin to ease their monetary policies, a shift in gold demand from western markets is expected as a decline in real rates should boost gold demand. This shift is underscored by the broader economic narrative, the rise of The Fiscal Age and the underappreciation of macroeconomic and geopolitical risks are key themes.
In conclusion, the dynamics surrounding gold are evolving, with a new class of strategic buyers — less sensitive to price and more focused on long-term wealth preservation — emerging. This shift, coupled with rising geopolitical and economic uncertainties, positions gold as an essential asset for all investors.
“GOLD IS THE MONEY OF KINGS, SILVER IS THE MONEY OF GENTLEMEN, AND BARTER IS THE MONEY OF PEASANTS. BUT DEBT, DEBT IS THE MONEY OF SLAVES.” ~ Franz Norm, Author of Money & Wealth in the New Millennium
“GOLD IS WORSHIPPED IN ALL CLIMATES, WITHOUT A SINGLE TEMPLE, AND BY ALL CLASSES, WITHOUT A SINGLE HYPOCRITE.” ~ Thomas More, Author of Utopia
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EQUITIES
Equity markets rebounded sharply after early August volatility, which was initially triggered by weak payroll data in the U.S. and concerns over a potential systemic unwinding of the Japanese carry trade. European equities, in particular, saw a strong recovery, supported by better-than-expected consumer and inflation data. Notably, for the first time, equity markets were not led by the Magnificent Seven (Mag7) mega-cap stocks. Instead, there was a noticeable rotation away from these few dominant names, leading to a broader distribution of market performance. This shift suggests that passive index trackers may face challenges, while active management strategies are poised to gain prominence.
FIXED INCOME
A collapse in inflation expectations, as measured by U.S. breakeven rates, meant inflation-linked bonds struggled, almost universally across bond markets. An all but guaranteed Fed rate cut is falling rapidly alongside a slowing labour market. Yields in US treasuries and UK Gilts looks increasingly attractive, and we especially like longer duration in the UK. With credit spreads at all-time lows, we remain underweight credit markets with no corporate bond exposure. EMD looks attractive in the face of declining US rates.
REAL ASSETS
Real assets performed strongly this month, driven by the increased likelihood of rate cuts, which sparked significant gains in REITs and the broader commodity complex. Gold continued its upward trajectory, reaching a new milestone by surpassing the $2,500 mark for the first time. We remain highly bullish on gold. Our outlook for infrastructure is also positive, as it stands to benefit from increased fiscal spending and declining interest rates. However, we are more cautious on property, as we believe current cap rates do not adequately reflect the realities of a higher interest rate environment.
SPECIALIST STRATEGIES
Our specialist strategies remain a crucial stabilising force within our portfolios, consistently adding significant value. Although our managed futures and trend-following exposures have faced challenges due to recent fluctuations in market sentiment, we continue to have strong conviction in the role these strategies play within our portfolios. We are confident in the sustainability of the competitive advantages of the strategies we own and the alignment of interests between our managers, ourselves, and our clients. We maintain limited exposure to private markets, both in credit and equity, due to ongoing concerns about debt levels and the refinancing cycle.
CURRENCIES
We maintain a broadly neutral stance on currencies. While growth and inflation expectations could exert downward pressure on the USD, interest rate differentials are providing upward support. The US Dollar continues to be the global reserve currency of choice, and we anticipate it will strengthen during any severe market dislocation, despite its already elevated exchange rate. We continue to hold a positive outlook on the Japanese Yen, viewing it as undervalued and offering substantial optionality, particularly as if interest rate differentials between the US and Japan continues to narrow.
CONTACT US
For further information on any of our services, or if you would like to arrange a meeting with an investment manager to see how we can work with you, please get in touch.
Disclaimer:
We try to ensure that the information provided is correct, but we do not give any express or implied warranty as to its accuracy. We do not accept any liability for errors or omissions. The content of this brochure is for guidance purposes only and does not constitute financial or professional advice.
Important information
Shard Capital Partners LLP is a limited liability partnership, registered in England with registration number OC360394. Shard Capital Partners LLP Registered office: Floor 3, 36-38 Cornhill, London, EC3V 3NG. Shard Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, reference number 538762.
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
Disclaimer:
This document is provided for information purposes only and is intend for confidential and sole use by the recipient. It is not to be reproduced, copied or made available to others. The information set out in this document does not constitute investment advice or a personal recommendation. The views expressed in this document are not intended as an offer or a solicitation, to purchase or sell any security or other financial instrument, credit or lending product or to engage in any investment activity.
Past performance is not a guide to future performance. It is important that you understand that with investments, your capital is at risk. The value of investments, as well as the income derived from them, can go down as well as up and investors may get back less than the original amount invested. It is your responsibility to ensure that you make an informed decision about whether to invest with us, based on your particular objectives. If you are still unsure if investing is right for you, please seek independent advice.
The information and opinions expressed within this document are the views of (the company) and are based on information we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. Any information provided is given in good faith but is subject to change without notice.
No liability is accepted whatsoever by (the company) or its employees and associated companies for any direct or consequential loss arising from this document.
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