BAR - The Gold Short: No More False Dawns
2024-01-23 00:24:44 ET
Summary
- Shorting gold has been intermittently successful, but the long gold crowd remains stubborn.
- Inflation-adjusted US T-bond yields are an inverse forward indicator of gold prices.
- The market is pricing in multiple rate cuts, but the expectations may be exaggerated, reinforcing a bearish view of gold.
I've had intermittent success shorting gold for years, particularly year-end 2018, March 2020, and H1 2022, though the long gold crowd remains one of the most stubborn groups of investors and also one of the hardest to break. This article will be comprehensively covering the entire global macroeconomic picture and factors that affect gold prices.
First, I will touch on the general portfolio theory of using a short gold position as an ideal market tail risk hedge protecting against a persistent rise in real yields that places downward pressure on equities, bonds, and inflation hedge assets such as commodities and TIPS, thereby denting traditional 401K and risk parity portfolios. The mechanism for this tail risk is, in short, a bond hedge that works in reverse.
Most theory used to protect portfolios in drawdowns now is simply a diversification into a combination of equities, bonds, and inflation hedge assets such as commodities. The problem with that is higher real rates can place downward pressures on all three of the above asset classes so it is not foolproof in certain events....
The Gold Short: No More False Dawns