Going forward, we believe that the very low level of interest rates worldwide will likely keep stock prices and valuations high. As such, investors may experience strong market swings and significant pullbacks. The S&P 500 price-to-sales ratio is at unprecedented levels ( Chart 2) and analysis by Crescat Capital suggests that the 15 factors that make up their S&P 500 valuation model are at – or very near – record highs. Yet, neither this nor the highly volatile US political events during the first week of 2021 have deterred investors from maintaining or expanding their exposure to risk assets. However, rising COVID-19 cases and a reportedly more infectious new variant of the virus created a renewed sense of caution. Global stocks performed particularly well during November and December, with the MSCI All World Index increasing by almost 20% over the period.
Gold investment to react to rates and inflation Based on the LBMA Gold Price PM in local currencies: US dollar (USD), euro (EUR), Japanese yen (JPY), pound sterling (GBP), Canadian dollar (CAD), Swiss franc (CHF), Indian rupee (INR), Chinese yuan (RMB), Turkish lira (TRY), Russian rouble (RUB), South African rand (ZAR), and Australian dollar (AUD). Source: Bloomberg, ICE Benchmark Administration, World Gold Council Investors’ preference for physical and physical-linked gold products last year further supports anecdotal evidence that, this time around, gold was used by many as a strategic asset rather than purely as a tactical play. We believe this was due to the dislocation that COMEX futures experienced in March relative to the spot gold price, making it more expensive to hold futures compared to other choices. For example, COMEX net long positioning reached an all-time high of 1,209 tonnes (t) in Q1 but ended the year almost 30% below this level. Interestingly, gold’s price performance in the second half of the year seemed to be linked more to physical investment demand – whether in the form of gold ETFs or bar and coins – rather than through the more speculative futures market. While the gold price subsequently consolidated below its intra-year high, it remained comfortably above US$1,850/oz for most of Q3 and Q4, finishing the year at US$1,887.60/oz.
Gold also had one of the lowest drawdowns during the year, thus helping investors limit losses and manage volatility risk in their portfolios ( Chart 1).īy early August, the LBMA Gold Price PM reached a historical high of US$2,067.15/oz as well as record highs in all other major currencies ( Table 1). positive price momentum – especially during late spring and summer.Gold was one of the best performing major assets of 2020 driven by a combination of: Gold gained from risk, rates and momentum
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