Lead-Lag Report: The Gold Strategy For 2025
After beating out the stock market last year, gold prices are poised for further gains. The metal has topped $2,800 per ounce this week for the first time. More impressively, that move has occurred as the U.S. dollar has been strengthening in global markets.
Investors are generally bullish, but several risks remain. A potential increase in tariffs could increase the cost of goods, and create further inflation. Under that scenario, gold’s returns could accelerate.
Meanwhile, governments continue to run deficits, even in a growing economy. A crisis of confidence could erupt in debt markets, which would likely send investors to gold. That crisis could take multiple forms, from a failed bond auction to a credit crisis.
The bond market continues to flash warning signs for investors. Bond yields have trended higher. That reflects rising uncertainty. Bond yields rising while most economic indicators are calm suggests that the market anticipates more inflation.
A rise in inflation tends to benefit gold prices as well.
Meanwhile, gold prices continue to outperform other assets such as lumber. That’s another historical sign that investors continue to see caution. Lumber prices tend to rise when the real economy is in growth mode, and gold tends to rise when inflation pressures remain strong.
Gold miners have underperformed during gold’s recent rally. That trend could change on a further rally in gold this year.