Why is gold buggin’?

Katie Martin (0:09)

The hottest asset on the planet right now is not some fancy tech stock or even a super sore away meme coin. It's gold. People are desperate to get their hands on the stuff. It's up like 10% this year, even though some of the things we normally look at elsewhere in markets to tell us what gold is going to do, are not really pointing that way. So today on the show, we're asking what is going on with this thing?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, and typically, I've got to say, I'm not much of a gold bug, but I bow down to the performance of this most ancient of assets. Speaking of ancient, guess who's back?

Robert Armstrong (0:56)

I should have seen that coming.

Katie Martin (0:59)

It's Rob Armstrong of the Unhedged newsletter.

Robert Armstrong (1:02)

The only asset more ancient than gold. Rob Armstrong, financial commentator.

Katie Martin (1:12)

Yes, I figured that joke might need work, but it turns out it worked pretty well. But how are you doing? You've been away. You've been outside of New York City.

Robert Armstrong (1:23)

I recently went to Arizona, beautiful Arizona for an investment conference, and talked to a lot of people who manage endowment and foundation money.

Katie Martin (1:36)

Big money.

Robert Armstrong (1:37)

And let me tell you, they are as puzzled as the rest of us about what is going on in the world right now. It's funny, people who run like a university's money, they have an office of three people or whatever, and they're running like a billion dollars or two billion dollars. And they outsource all the stuff, so they find outside managers to do it, but still they have to decide which manager and what to allocate to which assets. And these people are all overwhelmed anyway. And this period of time is very overwhelming for them, because they feel they should do something in response to all the weird changes going on in the world, but they don't know what it is. So I say, welcome to the party, endowment manager.

Katie Martin (2:19)

Yeah, you ask the experts like what's going on, and they say, I have no idea. You tell me. The scary thought is, maybe they're figuring it out from this podcast.

Robert Armstrong (2:30)

But this brings us precisely to the question of gold, which is the asset which you buy when you feel uncertain about things, right?

Katie Martin (2:39)

Yes, when bad stuff happens, gold goes up. When people are worried about the state of the world, gold goes up. Gold is up right now.

Robert Armstrong (2:46)

I think we should be a bit more specific about that. It's only when things, historically, the only time gold really outperforms your normal financial assets, like stocks or bonds or whatever, is when things are really bad. Like in proper crises is when gold really is a useful diversifier and hedge. When things are only mildly bad, it's actually a terrible asset tone.

Katie Martin (3:12)

But look, let's just talk about what it's done so far this year. As I mentioned, it's up 10% year-to-date, and like last time I checked, it's still only February. That's quite a lot.

Robert Armstrong (3:21)

Yeah, it's a big move on top of earlier big moves.

Katie Martin (3:25)

Yeah, so it's up 40% since the start of 2024 We are now at something like $2,900 an ounce. Ye gods, that's a big number.

Robert Armstrong (3:36)

It's basically doubled since late 2022

Katie Martin (3:39)

Yeah.

Robert Armstrong (3:39)

It's really impressive run.

Katie Martin (3:41)

Very impressive. So when you're talking about gold, yes, very obviously, it is a metal.

Robert Armstrong (3:48)

Yeah, it's not a vegetable.

Katie Martin (3:52)

I'm no scientist, but I know this much. But it doesn't move around based on the sorts of things that other metals move around on, because it's industrial uses are not the main driver of the price. It's more occurring.

Robert Armstrong (4:05)

Yes, there are industrial uses for this stuff, but most of the demand comes from jewelry slash investment demand. And in some parts of the world, those two are the same thing. But what was weird about the run in gold that went from, say, early 2024 to kind of the fall of last year is that the usual things that kind of moved the gold price, which are the real interest rate, that is the interest rate after inflation, and the dollar, because gold is priced in dollars, when the dollar strengthens, the gold price usually goes down. Those things which usually allow you to navigate the gold price, understand the gold price a little bit, those things were actually going the other direction. In other words, real yields were going up, increasing the opportunity price of owning gold, which should, in theory, make gold go down, and yet gold went up. And the dollar was getting stronger, which should create pressure on gold, and yet gold was going up. Now, however, in this latest 2025 rally, at least those things are all going the direction they're supposed to go. Real yields have come down. The dollar has, quite surprisingly, in recent weeks, weakened, when everybody thought it was going to strengthen. And gold has responded the way gold is supposed to respond. So, yay for this tiny shred of economic logic in what is happening lately to gold.