S2N Spotlight
Today I will make my forecast for Gold and the US Dollar.
It is clear we are in a bull market; however, it is important to note that gold has returned a compound annual return of 3.55% over the last 40 years, with a Sharpe Ratio of around 0.40. With a drawdown of 22 years to suffer along the way.
The point I am making is that gold, aside from its jewellery and industrial demand, is a safe haven asset. It is a place you put your money when you are concerned about inflation and other major risks. I remain bullish on gold as we continue to carry inflation risks on the back of more debt and increased money supply.
The drawdown table demonstrates that gold is not a symmetrical investment. It is possible to go through protracted periods of drawdown. I think the asymmetrical nature of gold returns means being flexible around the weighting in one’s portfolio is very important. Gold should be a fixture in every balanced portfolio, and I believe it should be sitting at the maximum weighting of your gold portfolio allocation.
Gold has done a lot; as you can see in the chart below, last year was the 3rd best annual return for gold in more than 40 years. Pullbacks in price should be seen as an opportunity to get fully invested.
The US dollar is similar to gold in that it is a safe haven asset. Despite all the issues that it faces on the debt front, there are not many alternative currencies to choose from. I am less bullish on the dollar than gold but think it will enjoy another year of strength.
S2N Observations
The correlation study below anchors gold and the US dollar against a number of different assets over 50 years. It is really powerful once you “get it.”
The nice thing about Gold is that it is not really correlated to anything over long periods of time other than Silver and Platinum. The same can be said about the dollar except for other currencies.
Yesterday was a day for the Trumps. Enough has been said about the inauguration, so I won’t add anything. The $Trump meme coin got completely out of control, reaching $90 on the Hyperliquid exchange; it is currently trading at $36.
S2N Screener Alerts
The German Dax and the FTSE both made new all-time highs yesterday.
Performance Review
For those who are new to the letter, the shading is Z-Score adjusted so that only moves bigger than usual for the symbol are highlighted.