Golden words he will pour in your ear But his lies can’t disguise what you fear

After a strong few days, global equity prices took a pause for breath on Thursday. The move from growth to value as a result of the rise in longer-dated US Treasury yields, pausing as 10-year yields fell slightly after some weaker than expected US inflation data. One can see from the chart attached the outperformance of growth sectors related to value, particularly in the past few months. One can also see that although there has been some reversion the gap remains historically wide.

The piece of economic data that has been making the news headlines today has been the latest GDP data for the UK economy alongside the Revolution Foundation recommendation that tax increases, particularly targeting capital gains should be a tool to repay the borrowings from the past year. This body described as a “think tank” should give greater thought to the impact this sort of thinking has had on growth over history. Academics should not be allowed to influence policy, theories and reality often do not match.

The latest UK GDP data confirmed the impact the measures to control the virus have had on the UK economy, despite a 15.5% increase in the economy from one quarter to the next the UK economy remains almost 9% smaller than it was pre-COVID-19. UK GDP remains below its prior peak than any of the past four recessions. The UK continues to underperform the rest of the G7.

As yields have recently risen the price of gold has retreated back to $1860 an ounce, about a 10% correction from its highs. Gold, ever since the 2009 recession has provided many investors who have not trusted the more traditional assets of equities and bonds, something of a safe haven. In a world of negative-yielding assets, this was a more tangible one. Gold’s attraction as part of a jewelry collection is well known, the asset has no real industrial use, however, it is also considered an inflation hedge. Economic research does support the view that over an extended period of time that it does provide the store of value, however in the short term the volatility makes less of a clear case. The probability is that those who believe in the benefits of Gold will continue to hold it, however, if longer-dated US Treasury yields continue to rise, the price could lose more of its appeal, particularly if the US Dollar continues to fall.