Taken from their latest blog. 1. Given both equities and bonds have been declining, should gold have performed better than it has? Gold has proven valuable for investors given the broader macroeconomic context. It remains one of the top-returning assets year-to-date, especially for non-US dollar investors. It has also done significantly better than would be expected based on real rates and the dollar. Furthermore, when put in context of asset performance over the past three years, it has protected capital and served as a source of liquidity. Gold has outperformed what simplistic models suggest. A commonly used model based solely on the direction of the dollar and real rates suggests gold should have been 21% lower than it is now (Chart 1). But last year we highlighted the pitfalls of relying on such a simplistic approach. Why? First, gold’s correlation with the dollar is not always negative. We’ve seen this correlation flip to positive over the past few months – as it has done in the past. Second, rising interest rates can make gold less attractive if they raise the opportunity cost or reflect higher economic growth ahead. Neither of those appear to be true at present. Growth expectations are falling and the opportunity cost – correctly viewed in real terms – remains historically low.