This is a TLDR version. The full comprehensive report is found here.

Background of gold: 

• Gold is a socially accepted store of value before and after paper money was invented. 
• The USD had largely been pegged to gold, until 1973 due to economic pressure. 
• Gold has limited industrial applications and it’s more of an alternate currency rather than a consumable commodity. 
• Why do people invest in gold: Gold is used to hedge against currency risks, inflation, market volatility and to diversify a portfolio due to its low correlation with financial assets. 

How we analyse the fundamentals of gold: 

• The following factors are some that influence price of gold. Though, they are all intertwined and should be analysed holistically. (See chart in 2.5 that summarises the relationships) 
• Global fear and panic: Gold serves as a flight to safety. Lower confidence levels about economic growth, political stability, government solvency, and monetary disruptions are beneficial to gold. 
• Interest rates: Gold prices have an inverse relationship with interest rates as it is a non-yielding asset. For example, when global interest rates are high, investors will prefer to park money into bonds, causing an outflow from gold. 
• Value of the US dollar against global currencies: Gold prices and the USD share an inverse relationship. A depreciating USD would mean that investors can buy more gold with the same amount of local currency they hold – hence demand for gold would rise.
• Inflation: Gold has traditionally been seen as an inflation hedge. Gold does especially well in periods of extreme price instability. 

Our outlook/house view on gold: 

Global economic contraction almost certain; Gold likely to thrive especially amidst stagflation. 

• The yield curve is heavily inverted, and the US Purchasing Managers Index indicates economic contraction, both suggesting a recession. 
• Signs of weakening output are apparent due to aggressive interest rate hikes, leading to a deepening downturn worldwide. 
• Persisting inflation is expected despite monetary tightening, and a pause in rate hikes is beneficial for gold, which has an inverse relationship with rates. 
• Stagflationary outlook is real due to the globally synchronized hike in interest rates, record high debt levels, record low unemployment rates, and geopolitical tensions causing supply chain and labour constraints.
• Gold performs favourably during stagflation, as it is a stable and safe asset that investors flock to during such times. 

Still room for Central Bank demand for gold, especially with the current state of the world’s reserve currency.

• Central bank demand for gold is at a record high in 2022 with net purchases totalling 1,136t 
• China and Turkey are notable purchasers due to geopolitical tensions and monetary crisis respectively. 
• Gold's performance during times of crisis and its role as a long-term store of value are the main drivers for purchase.
• The eroding confidence in the USD, due to numerous QEs and its use as a financial weapon against Russia, is gradually causing central banks to diversify into alternative currencies, with Brazil and China ditching the USD for trade payments and BRICS nations working on creating their own common currency.
• This implies that central banks will rely less on the USD as a foreign reserve and a clear alternative is gold. Additionally, demand for US assets and the USD may fall, benefiting gold as it has an inverse relationship with the USD. 

Slew of other macroeconomic and geopolitical issues.‍

• The US has hit its $31.4t debt ceiling, equivalent to $200k of debt for every US taxpayer.
• If the US does not raise the debt ceiling, the government will default on its debt and be forced into austerity measures, which will benefit gold
• If the debt ceiling is raised and new debt issued, investors may lose confidence in the US economy, leading to currency devaluation and credit downgrade, which will also benefit gold
• Geopolitical tensions between the US and China, war in Ukraine, and OPEC+ output cut have heightened the risk level
• Fear of contagion risk in the banking sector due to the collapse of several regional US banks and recent Credit Suisse bailout and Deutsche Bank selloffs

Ways to gain exposure to gold:

• Physical gold: Gold bullion, coin and jewellery are common ways. Jewellery is the least efficient due to significant markup cost. Authenticity is crucial so dealing with a reputable party is key. UOB Banking Hall Basement and other reputable dealers are some options. Transaction fee can be high and storage cost needs to be factored.
• Gold ETFs: ETFs hold gold bullion in a custodian bank’s vault. Lower capital required and less logistical hassle and cost vs owning physical gold. Better liquidity and can be traded anytime through a broker. However, do consider expense ratio, tracking error and reputation of counterparty. 
• Others: (1) Gold Savings Accounts work like ETFs but offer paper gold. Calculate to determine which is better. (2) Gold Mutual Funds are less ideal than ETFs due to higher expense ratios and no intraday trading. (3) Gold Futures require high capital and involve a steep learning curve, not recommended for retail investors. (4) Gold Stocks provide indirect exposure to gold and are subject to other factors. 

Concluding thoughts: 

• Gold tends to underperform the stock market in the long-term and has no income potential 
• Nevertheless, gold performs well in our current climate – with uncertainty from an economic, monetary, and geopolitical perspective.
• Currently have a small portion in gold ETFs as a short-term play

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