Market Commentary 7th October 2022

For those that don’t know, I am the Chief Investment Officer at IPS Capital. Each week I highlight few things that have come across my desk that I think are interesting and investment related. We always welcome dialogue so if you have any questions we’ll be happy to answer them here too.


I wrote my quarterly client note yesterday with the usual review of the previous quarter and our investment outlook. I rarely get feedback along the lines of “that was great, Chris, but can you make it longer?” so I try and make it as compact and readable as I can. One asset class that did not make the final edit this time was gold. The first thing I would say is we have a general preference at IPS for productive assets (i.e. ones that ultimately produce cash for you the investor) over unproductive ones (where the only return comes from the price going up). This means we may miss out on some of the excitement in crypto, say, but at least we have Warren Buffet behind us when we do so.

That said, we have owned some gold in the past but have exited nearly all our positions today. Simply put, the usual catalysts for price rises (inflation, central banks printing money, war) look to be behind us. And given that we have had all of those catalysts so far this year gold’s performance has been, well, disappointing?

Gold is down 6.5% vs the US dollar year-to-date

Source: Bloomberg

Now this is gold measured in US dollars. Sterling investors are up for the year but this is really a story of the pound’s weakness than gold’s strength. And we think it is likely that as UK and European economies recover from the energy shock they are experiencing, sterling should drift back from 1.11 or so against the dollar to where it was before the crisis started (1.30 to 1.40 say). Sterling strength would obviously be a headwind for any gold holdings.

Perhaps the better play is to own gold miners rather than gold itself? One gold bull we follow, hedge fund manager Russell Clark, produced the chart below to answer that question. The short answer is no. The long answer is also no. I don’t think I have ever seen more long term vale destruction in a sector than the long term return earned from gold mining shares, especially when compared to price performance of the thing it is mining.

Source: Bloomberg

The next time someone tells them that something “is like a gold mine” you should show them this chart.

Finally, I will reproduce one of the charts I used in the client note here. The macro outlook is not great today. We are about to go into a winter where mortgage rate and energy price rises will squeeze incomes and many public sector workers will (fairly) be looking for inflation busting pay rises. Still, there is a saying in our business that “if it is in the press it is in the price”. And you can see this pretty clearly in the UK stock market. This is now trading below 9x earnings (compared to an average of 14.1 times, so a 37% discount). The previous times it did this (2008 and 2011) proved to be good longer term buying opportunities. But the macro outlook was pretty grim then as well! This feels early to us but if you are feeling brave today at least equity valuations look to be on your side.

UK equities are trading very cheaply

Chris Brown
IPS Capital


The value of investments may fall as well as rise and you may not get back all capital invested. Past Performance is not a guide to future performance and should not be relied upon. Nothing in this market commentary should be read as or constitutes investment advice.