A link between policy uncertainty and gold

 

"A bet on gold is really a bet that the people in charge don't know what they're doing."

- Matt O'Brien, 2015

'The monetary order is breaking down,' - Ray Dalio

Gold prices have reached uncharted territory amid US policy uncertainty and trade tensions. You could look at headlines and make some connections, but more importantly, we can examine objective measures of uncertainty as indicators of a change in the monetary order.

The trade policy uncertainty index has fallen from high levels, but remains at extreme levels. The global economic uncertainty is also high and at extremes. 

If the monetary order and policy framework is breaking down, there will be a search for safety. However, if the safety of holding dollars and Treasuries is no longer present, we will see a search for alternatives, and right now that is in precious metals. 

Gold allocations will rise, and even a small increase across many portfolios will create demand that current mining production cannot meet. This is fueled by increased demand from central banks.