While the constantly repeated mantra of ‘you cannot buy past performance’ is as true as ever, it rarely stops investors from at least being tempted to invest in funds that have done well recently.
In the case of gold this appears to be especially risky given the particular circumstances of gold’s rise over the past six months.
As you can see here, gold funds have dominated the top end of the performance table for the first half of 2016, and the asset class as a whole has put on 38% year to date.
The question now though, is whether the rally has played itself out or if there is further to go.
On one hand you can point to the fact that two of the biggest macro risks for 2016 are not in play now, at least for the time being. China has been on much more of an even keel over the past few months after the share crash last August and a fresh bout of market jitters over China’s growth in January.
Across the other side of the world, one of the biggest fears in markets, Brexit, has come to pass now. While big sell-offs happened in the two business days following the result, since then markets have been remarkably resilient.
These two things suggest the ‘flight to safety’ could be ending, or at least on hiatus. That would take the steam out of gold’s rise.
