Gold: Old and New

Gold is still a useful portfolio diversifier, but its price is now better explained by ETF flows than by its traditional inflation and real-yield relationships, while Bitcoin offers a distinct and riskier performance profile.

• U.S. CPI peaked at 9.1% in early 2022, yet gold is now much higher while inflation is far lower; the gold-inflation correlation has declined each decade since the 1970s and has been negative so far in the 2020s.
• Purpose’s earlier gold model used the U.S. dollar, real yields, two-year inflation breakevens, the VIX and gold ETF flows, and tracked gold closely from 2004 to 2021; the post-2021 model requires different factor weights, with ETF flows becoming much more influential and real yields changing direction.
• Gold miners represent 13.7% of the TSX Composite, while the TSX Gold Sub Industry Index trades at 13.6 times forward 12-month earnings; consensus earnings are forecast to rise from $325 in 2026 to $395 the following year, or 21% growth.
• The team added to its gold-miner exposure in late July, taking it to 5–6% in its North American dividend mandate, but warns that miners may be stretched after their recent rally; bullion remains the preferred diversifier despite failing to protect portfolios during the market weakness linked to the Iran conflict.
• Purpose distinguishes gold as crisis alpha from Bitcoin as a potential performance booster; its Bitcoin ETF-flow model turned bullish on July 31, although flows have softened, and Bitcoin fell slightly more than equities on average during the later crises in the comparison.

Takeaway: Investors should remain constructive on gold miners and especially bullion as a diversifier, while treating Bitcoin as a volatile, flow-sensitive return enhancer rather than a reliable hedge in risk-off markets.