Article
Why is gold at $3000?
25 March 2025
Welcome to Uncommon Truths, Paul Jackson and Andras Vig’s regular in-depth look at the big topics impacting markets.
Gold has risen by 84% since September 2022, despite a fall in demand and a rise in supply. Paul explores why?
Econometric models suggest that such a move cannot be explained by real yields, inflation expectations or the dollar. Rather, it seems that concerns about geopolitical events are the explanation. The events considered are a Trump White House, Russia’s invasion of Ukraine and the Hamas attack on Israel (dummy variables for all three prove to be statistically significant). Net open interest positions on major gold futures exchanges have been at record highs over the last year or so and Paul thinks that is out of concern about geopolitics.
However, a model allowing for such events cannot explain a move beyond $2500. Paul wonders if the second Trump White House has proved more supportive of gold than the first one did. In any case, gold is at record levels in real terms (based on 150 years of history), so Paul expresses some caution. Notably, if President Trump does bring peace to Ukraine and the Middle East, the price of gold could collapse (based on Paul’s model).
Catch up on the last few editions:
FAQs
The optimal portfolios are theoretical and not real. We use optimisation processes to guide our allocations around “neutral” and within prescribed policy ranges based on our estimations of expected returns and using historical covariance information. This guides the allocation to global asset groups (equities, government bonds etc.), which is the most important level of decision. For Uncommon Truths, the optimal portfolios are constructed with a one-year horizon.
We’ve chosen to include equities, bonds (government, corporate investment grade and corporate high-yield), real estate investment trusts (REITs, to represent real estate), commodities and cash, on a global level. We use cross-asset correlations to decide which decisions are the most important.
Using a covariance matrix, based on monthly local currency total returns for the last five years, we run an optimisation process that maximises the Sharpe Ratio. Another version maximises Return subject to volatility not exceeding that of our Neutral Portfolio. The optimiser is based on the Markowitz model.
Related articles
Asset allocation Quarterly Global Asset Allocation Outlook | Q2 2025
Paul Jackson, Global Head of Asset Allocation Research for EMEA, discusses his insights on portfolio allocations and strategies for the Q2 2025 outlook.
24 March 2025
Asset allocation Tactical asset allocation
Welcome to our Tactical Asset Allocation hub. Here you’ll find a selection of the most recent research from Invesco Solutions. Read our latest analysis that covers market strategy and opportunities across various asset classes.
10 March 2025
Asset allocation The Shiller P/E and S&P 500 returns revisited
Welcome to Applied philosophy, our view on global equity market model sector allocation.
3 March 2025
-
Investment risks
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Important information
Views and opinions are based on current market conditions and are subject to change.
This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
