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Articles by Alexander

Alexander Johnstone

Assistant Fund Manager

9 July 2026

The rally in gold over the last two years has been remarkable, but its weakness since the Iran war caught many investors off guard. It has corrected over 25% from its January peak but is still up more than 70% over the last two years. Gold has often been viewed as a geopolitical hedge – and yet it has hurt, not hedged, investors through the recent months of geopolitical upheaval.

The key relationship that has been re-established is between gold and real (inflation-adjusted) yields. Before 2022, gold tended to behave inversely to yields. This is intuitive: gold yields nothing; so, when rates rise, investors reallocate to yielding assets.

Why did this relationship break down in 2022? Central banks started acquiring more gold, and they were not interest rate sensitive buyers. After the invasion of Ukraine, the US weaponised the dollar and froze Russian assets. The response of emerging market central banks – most importantly the People’s Bank of China (PBoC) – was to increase gold reserves and reduce their reliance on US treasuries and the dollar. Official central bank purchases have averaged over 1,000 tonnes per year since 2022, double the rate of the preceding decade. And that doesn’t even capture all PBoC transactions.

While the Ukraine war may have laid the foundations for the gold rally, the Iran war looks to have brought an end to it, at least for now. The oil supply shock severely impacted many of these emerging markets.

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Firstly, the Turkish central bank sold a significant chunk of its gold reserves in March in an attempt to protect its currency. Although it resumed buying in April, the episode reminded investors that these institutions could reduce as well as increase reserves. Secondly, retail demand for the metal cooled, most notably in India where President Modi responded to the energy crisis by more than doubling tariffs on gold to discourage non-essential imports.

Most significantly, institutional allocators have become sellers as global bond yields spiked with oil prices in anticipation of higher inflation and a shift from rate cuts to hikes. The oil price has since receded, but strong US economic data and tough rhetoric on inflation from new Federal Reserve Chair Kevin Warsh have kept real yields high. Speculative positioning in futures and options has reversed, amplifying the fall in the gold price.

While central banks have stepped in to buy the dip, they have been unable to establish a floor. Investors have taken Warsh at his word on delivering price stability. US yields and the dollar have risen; inflation expectations (proxied by breakeven rates) have fallen. If markets were buying gold as a debasement trade – owning real assets to protect against the risk that authorities devalue fiat currencies – they are selling it as a rebasement trade.

Aside from helping to explain the sell-off since February, the relationship between gold and yields is key when considering the metal’s role in portfolios. Its beta (a measure of one asset’s sensitivity to movements of another) to US yields is at five year highs. Since equities and bonds have been positively correlated, gold’s beta to equities (proxied by the S&P 500) has risen to its highest in 40 years. While it has traditionally been considered a safe haven, gold has been behaving as a risk asset.

We continue to believe in gold’s structural role in a portfolio. When push comes to shove, central banks are unlikely to focus on price stability at the expense of market stability. Gold’s attraction is as a real asset that is not tied to fiat currency. However, it is equally important to consider gold’s current characteristics as a portfolio asset. It has not been diversifying risk but compounding the pain of the positive equity-bond correlation. In this environment, maintaining low exposure is prudent.

We have consistently reduced gold exposure from spring 2025. But we maintain an allocation to gold mining equities, which remain highly profitable even at a bullion price significantly below the current level.

Articles by Alexander

Alexander Johnstone

Assistant Fund Manager

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Piers Wheeler

Director – Institutional

T +44 (0)20 7963 8258

Developing and executing asset management strategy for capital raising and strategic relationship management. Coverage includes EMEA, Asia and Australia. Piers joined Ruffer in 2021, having previously worked with asset management firms including Eastspring, AMP Capital and LEK as a strategic consultant. He holds a MA from the Bayes Business School and a BA (Hons) from the University of Oxford.

Annabel Paterson

Senior Associate – Institutional

T +44 (0)20 7963 8123

Joined Ruffer in 2021, having graduated with a first class honours degree in land economics from the University of Cambridge. After two years working with the UK Private Wealth team, she now supports Ruffer’s global business development and client servicing efforts. She is a CFA charterholder.

Articles by Annabel

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