Over the last year some of the key factors have been in place for a bull market for gold and silver, with inflation rising to 7% in the US and rates barely moving. Yet the reality worked out quite differently. I remain bullish on the outlook for monetary metals, however.

So why didn’t gold and silver rally hard in 2021? Isn’t gold in particular supposed to be an inflation hedge? How I’d answer those questions is by pointing out that monetary metals trade in large, liquid FX markets with no physical attached, and while the market is about real interest rates to an extent, it’s most importantly about 5-10 year rate curve expectations. What everyone thinks about is whether they want to hold their local domestic currency long, or are they worried about purchasing power and want to hold gold. Over much of the last 12 months the consensus expectation was that inflation would fade away and rate hikes were coming.

Today, however, Jerome Powell looks increasingly stuck threatening to raise rates without it seeming like the Fed can be actively hawkish without simultaneously risking market stability. It’s a central banking pantomime, as Powell shouts “I’m going to raise rates!” and bond investors call back “Oh no you’re not!”. I think it’s the market that is right, and that it isn’t feasible to do anything like the full raft of rate rises that have been suggested for this year and next.

Away from macro, the merger and acquisition wave among listed monetary metals companies, which we’ve been expecting, is very much upon us now. One of the sub-trends within this is a bias in this activity towards Canada, to the benefit of investors like us who know individual locations and risk profiles well. Perhaps Australia will be the next place to ride the M&A wave? The gold price in Australian dollar terms is about where it was a year ago, but many of the Australian gold mining stocks have seen their share price halve over that time, which suggests there is plenty of opportunity from here.