Monthly Digest: Double, double, toil and trouble

The school I attended in Wales between the ages of seven and ten ambitiously put on a Shakespeare play every year. I reached the pinnacle of my acting career at the age of ten, playing Lady Macbeth. I died twice in one night… the Royal Academy never called.

But with certain shares and commodities doubling, then doubling again before running into the toil and trouble of profit-taking, the famous line from Macbeth, “Double, double, toil and trouble” feels like an apt title for this month’s commentary.

Off to a good start

An old stock market saying holds that “as goes January, so goes the year”. That’s not as simplistic as it sounds, because markets tend to follow the underlying direction of economic growth and corporate earnings. It usually takes some sort of policy change or exogenous event to alter the path.

January offered another array of novel things to worry about, including the arrest of the President of Venezuela, a US threat to the sovereignty of a Nato ally and the formation of an American armada that is heading for the Persian Gulf, with potential to make an intervention in Iran. There was another round of tariff sabre-rattling and ongoing uncertainty about who would be the next chair of the US Federal Reserve (Fed). The common source to all of these worries is the US government. Gone are the days when the US was the global hegemon and peacekeeper, presiding over the rules-based system that has dominated global trade, diplomacy and finances since World War Two. Now it’s the disruptor.

And yet global equity and bond markets (and, hence, balanced portfolios) made further advances in January. The global economy seems to be in decent shape despite the concerns. The effect of past interest rate cuts has been supportive (with more to come), as is the capital expenditure tied to the spread of genAI in our lives. Companies’ fourth-quarter earnings results announced so far suggest that profits are growing, and the outlook for 2026 is positive (more in the regional sections below).

Prec(oc)ious metals

One of the more remarkable features of recent times has been the extraordinary rise of precious metals prices. As with most speculative runs, this one is built on sound foundations, though the violent retrenchment heading into February suggests that markets think they’ve got ahead of themselves. Since Russia invaded Ukraine and the US froze Russia’s dollar assets, central banks around the world (mainly those of countries not aligned to the US), have been shifting their paper dollar-based reserves into something more tangible.

There has also been safe-haven demand for gold from investors looking to insulate themselves against geopolitical risk. Purchases of gold, seen as a hard asset that holds its value, may also be fuelled by the perceived risk of currency ‘debasement’. This is where governments and central banks collude to encourage more inflationary growth and suppress interest rates, in order to reduce government debts in real (inflation-adjusted) terms. At the same time this destroys the real value of low-risk savings such as cash or government bonds.

Gold’s gains also come in the context of a wider global commodity buying spree, which stems from the thesis that as nations become more focused on national security, this could lead to the stockpiling of strategic reserves. They’ll also want shorter supply chains in general, which call for bigger inventories and more investment in local manufacturing. Add to that the ongoing demand for genAI-related infrastructure and pledges to increase defence spending, and a looming shortage of critical metals and minerals. This is exacerbated by supply constraints, with producers slow to increase output following the threat to the industry when the last big commodity boom went bust in 2016. You can read more on our views on metals and mining in our February Investment Insights magazine, due out soon.

The result has been a spectacular increase in the price of gold and silver, in particular, although other metals have been strong too. In dollar terms, gold almost tripled from around $1,800 per troy ounce just before Russia’s full-scale invasion of Ukraine in February 2022 to a peak of $5,417 in January. Silver came to the party a bit later, but did more than a ‘double, double’, rising from $24 at the beginning of 2024 to a peak of $117.

We still believe that the increases had their roots in sensible portfolio diversification. But that appears to have been overtaken by a combination of speculative and momentum-based purchases, including buyers who’d used borrowed funds. At the time of writing, the prices of gold and silver were down 9% and 24% respectively from their highs, but only back to levels first reached in mid-January.

We continue to see precious metals, with a preference for gold, as credible diversifiers within balanced portfolios, given their tendency not to move in tandem with equities and other risk assets.

Bank of Kevin

A long-running saga has been the race to replace Fed Chair Jermone Powell when his term ends in May. Investors are concerned because President Trump, who has nominated former Fed member Kevin Warsh, wants interest rates to be a lot lower to juice the economy. This risks pushing inflation higher, undermining confidence in the dollar and, indeed, US governance in general.

Warsh’s record at the Fed (from 2006 to 2011) places him firmly in the ‘hawkish’ camp wanting tighter monetary policy. This makes him an odd choice. Even in the aftermath of the global financial crisis, he stood out for being critical of the Fed’s

bond-buying (money printing) programmes. One can only wonder if he has executed a philosophical U-turn to attain this prestigious post. A positive market reaction so far, including some recovery in the dollar, points to hope that he will stick to his inflation-fighting guns. We won’t be making any portfolio changes on this basis; he still has to gain Senate approval.  

The Long Now

Often in these commentaries we’re looking to dispel fears about the long-term consequences of things that are having an immediate effect on markets. But for some people, even our long-term approach looks extremely short-sighted. The Long Now Foundation (of which I am not an affiliate) encourages people to consider developments over millennia. Its flagship project, started 30 years ago, is a clock designed to tick once a year and run for the next 10,000 years (it’s still not finished).

According to the project’s leader, Danny Hillis, “We have a bias toward the sudden, and we have a bias toward also noticing the dangerous and the negative too. And so the electronic media amplifies that, and maybe it seems like things are more hopeless than they really are.”

OK, even for us a 10,000-year investment horizon is a bit of a stretch! But in uncertain times we always come back to the anchor of a robust investment process and our belief in individuals and companies to innovate and compound growth. Sometimes this is in defiance of here-today, gone-tomorrow political leaders who have their own short-term agendas.