Gold now! Gold forever! Only gold! Gold! Gold!

Katie Martin (0:09)

Remember the summer, those warm, happy days, so recent and yet so long ago, now that the night's drawing in. At the tail end of the summer, first weekend in September, we had the FT Weekend Festival in London on the grounds of lovely Kenwood House. And some guy called Robert Armstrong traveled all the way from far away in New York to join us for a recording of this very podcast. Where am I going with this? You're asking yourself, well…

Robert Armstrong (0:35)

I know where you're going, you mean old person.

Katie Martin (0:41)

In the long short, that part of the show where we go long a thing we love, or short a thing we hate, Rob was short gold. It's going down, he confidently predicted. Listeners, have a little guess how much gold has gone up since that day.

That's correct. It's up by 12%. The shiny stuff is now close to $4,000 an ounce. Today on the show, we're asking, how did Rob get it so wrong?

Robert Armstrong (1:14)

I would like to inter...

Katie Martin (1:16)

And... What the hell is up with gold? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist and professional Rob troll at the FT in London. And I'm joined down the line from New York City by Mr. Wrong, Robert Armstrong.

Robert Armstrong (1:38)

Dude, how do you read? Okay, I'm not a total rookie at this game. And those who were with us on that beautiful day in London will remember that it was a long-term call. I specifically framed it in terms of disappointing long-term returns. And so I still have a chance to be right, even though I have been wrong for like a month.

Katie Martin (2:05)

There's nothing on this show.

Robert Armstrong (2:08)

I mean, I think it just continues to be, in a way, the biggest story other than AI in finance. You know, it's just so rare to see this particular asset go up this much at a time when there are not any crises elsewhere in markets.

Katie Martin (2:31)

The normal reasons why gold tends to go up just don't apply here, which is very weird. But first of all, where are we at? So we're very, very, very close to $4,000 an ounce for the first time ever. It might well have hit $4,000 by the time this show goes out in a couple of hours. It's the biggest rally since the 1970s, a fine decade, as Rob and I will attest. It's up more than 50% this year. September was the biggest month for the gold price since 2011 People, they are calling it gold-plated FOMO. It's all going on. It's like a huge rally. And it's not just up a lot in nominal terms, it's up a lot in inflation-adjusted terms.

Robert Armstrong (3:17)

We are at an inflation-adjusted high. It is true.

Katie Martin (3:20)

However, you cut it, this is a monster, monster, monster year for gold. And I don't remember that many people banging on about it at the start of the year. It's kind of just come out of nowhere.

Robert Armstrong (3:30)

There is one fundamental factor that is traditionally associated with gold and that is working for it right now, is that the real rate of interest has been falling as Fed cuts have appeared on the horizon and even reached us. So, the 10-year inflation-protected treasury yield, which is a kind of proxy for real rates, is down from 2.2% to 1.8% since June. So that helps. And again, for our listeners who don't think about gold all the time, and good for you, the reason is gold doesn't yield anything. So when the yield on money, real yield on money goes down, the opportunity cost for owning gold declines. And for a long time, people were amazed that real yields were up, and gold was up at the same time, but now we have this traditional relationship, real yields down, gold up, back in place. So that helps.

Katie Martin (4:32)

If bonds aren't paying you that much, once you take inflation into account, then you may as well own a pet rock, and hope that the price of the pet rock goes up, and you make money out of it.

Robert Armstrong (4:41)

You know, this is a good time, now that you use your pet rock joke that you use every time, to note that you've been as wrong about gold as I have, Katie.

Katie Martin (4:52)

Not the issue at hand.

Robert Armstrong (4:53)

I would expect a little bit of contrition and a little bit of humbleness from you on this topic.