The writer is chief strategist at UBS Investment Bank
Between 1834 and 1971, the US dollar’s value was defined in terms of a fixed quantity of gold. After the collapse of the Bretton Woods regime in 1971, gold began trading freely and has since experienced three major bull markets: 1971-80, 1999-2011, and a third phase that began in 2018. We believe this latest advance has further to run.
In its first bull market through the 1970s, gold posted 46 per cent annualised gains over eight and a half years, among the most dramatic revaluations of any major asset in modern history. This reflected a collapse in the postwar monetary order, deeply negative real interest rates, geopolitical uncertainty and widening fiscal deficits. The second bull run saw gold become financialised, lifted along with other commodities by Chinese demand and, again, by exceptionally loose US monetary policy. Annualised gains of almost 18 per cent were less spectacular but more sustained.