Gold Price Behavior Continues to Defy Expectations
Gold's price behavior has been puzzling investors in recent years. Despite high inflation rates, gold prices have not followed their usual trend of increasing in value when inflation rises.
A model that was once effective at predicting gold prices is no longer reliable. The model used to incorporate various drivers such as the U.S. dollar, real yields, and ETF flows. However, since 2021, the model's performance has deteriorated, and a new model with different factor weights is needed.
The Canadian Gold Index has been performing well due to strong earnings growth in gold miners. The index trades at a p/e ratio of 13.6x and is expected to grow further with forecasted earnings of $325 and $395 for the next two years.
Bullion, or physical gold, remains a diversifier that has a strong track record of performing well in times of market stress. The chart comparing bullion prices to major equity price drops since 1990 shows that gold often holds its value during downturns.