Good morning and welcome to our monthly House View. The year kicked off with a strong push from the US administration to expand the US influence in the Western Hemisphere.
We have seen rising geopolitical tension in Venezuela, Iran and Greenland. The consequence of that was a rise in the rally in silver and gold prices, the dollar weakness and also some resilience in equity markets, with the emerging markets outperforming. But let's start with the gold prices. As I just mentioned, gold prices have rallied over the past few weeks. But since last Friday we have seen a market correction following the nomination of Kevin Warsh at the FED.
So Marie, what is our view on the gold price? Have we changed our view following this market correction?
We've seen there is a gold correction in the past days. But we continue to be strongly overweight gold. We continue to see a structural positive trend for gold prices. For the main drivers of demand are still here. First of all, the financial demand and second one, the central bank demand. So if we look at the financial demand, we know it’s still high when we have real interest rate that stay low or that don't move. This is the case today and it’s going to continue because it removes the opportunity cost to have gold. Because it’s a non-yielding asset. This is also a way for emerging central bank to answer their fear of dollar debasement. You just mentioned dollar debasement since the start of the year the dollar index is down 1.5%. And there is still a strong narrative that the de-dollarisation will be a subject over the coming years. But on the other side, there is also strong macro fundamentals in the US with a very strong US economy, resilient labor market. And we know as well that following the nomination of Kevin Warsh at the FED, there are less fear that the FED could be less independent.
So what is our view on the US dollar?
So as you said: growth, the new nomination are positive for the dollar. But despite that we are still negative on the dollar. We are strongly underweight for there are two economic elements. The usual one, let's say, that are still negative for the dollar. It's the rates differential. It's less and less positive for the dollar. And also we have increasing public debt increasing deficit. On top of that we have the Trump’s administration that is changing the dynamic of the dollar. Usually when there is geopolitical tension dollar tends to rise. It's not the case anymore. We have political stress, economical stress from the US, potentially against their allies. So that’s why everyone wants to get away from the dollar and diversify. Last year, the dollar was down more than 10%. It was also a support for equity market, particularly in the US. You talked about the scenario in our investment process. We try to ignore the noises or the political noises and try to focus on the four pillars that we have central banks, fiscal policy, market analysis and financial analysis. And according to those four pillars, we are positive on on the equity markets.
Can you tell us a bit more on our positioning Marie ?
So we are positive on equities. We have this Goldilocks environment where we are expecting growth to stay resilient in the US. We are expecting a recovery in Europe. And we have inflation that is going to stay moderate. So we have monetary expansion that will continue. In this environment we are confident on valuation and we are also very confident on earnings growth that is expected to be high this year, higher than the historical average. So it's going to be a main driver for equities performance this year. And we are also overweight emerging equities because they benefit from a weaker dollar. As you will have understood at Mirabaud we ignore the noise and we focus on the fundamentals. Fundamentals are solid in the US and also in Europe. In terms of asset allocation we are equally weighted on equities with a preference for emerging markets. We try also to diversify in terms of sectors. Despite the current market correction, we remain positive on gold. On our fixed allocation we are still underweight the US dollar.
Thank you very much for tuning in and see you next month.
