Macro Observations

We all know the familiar investing principle that gold is a traditionally defensive asset class that prospers when there’s trouble elsewhere in the financial markets. The more important thing, in my opinion, isn’t why gold is ripping right now, but what else is happening alongside it. As gold is rallying, so are utilities and long-term Treasuries. This trifecta of risk-off assets all performing strongly at the same time could be providing a very serious warning for investors.

Small-caps give us a sense as to just how strongly investors are buying into this soft landing/no recession narrative. Small-caps should have begun leading as inflation came down, interest rates peaked and recession became a low probability outcome. But they didn’t. Why are they still performing so relatively poorly when the economy is supposedly doing so well? The answer is that it isn’t.

Commodities are generally considered a good inflation hedge for a few reasons. Obviously, this hedge won’t work in every situation. The last couple of years have been unique. If we try to go back historically to find something similar, the stagflation ‘70s would be the obvious place to start looking. From there, you really kind of have to search around.