The algorithm used takes into account macro factors. It looks at fundamental economic indicators such as economic growth and inflation, as well as financial conditions. “Our models classify gold as cheap, 5-7% undervalued, depending on the time horizon you're looking at,” Roberts said in an interview with Kitco.
However, according to him, it is also necessary to take into account the degree of confidence in the algorithm: “The algorithm produces a confidence number for the model, which, in fact, is a “fit”, that is, how well the model reflects the movement of asset prices at a given moment. And our value must be above 65% for the signal to be considered reliable. And although we currently value gold as cheap, the confidence in the model is about 50%. For investors, he says, this means that perhaps some caution still needs to be exercised, but the yellow dargmetal should be in the spotlight.
According to Roberts, the two most important factors affecting gold are risk aversion and credit spreads. The latter are a great indicator of financial conditions, especially if the Fed tightens monetary policy: “Credit spreads are now a key driver for gold. If risk declines, the VIX rises and credit spreads widen, that's good for gold. For now, gold is a safe haven for us.”
Gold's role as a safe haven is more important than a hedge against inflation, he says: “There are indications that inflation is also a positive factor. But at the moment, the safe haven aspect dominates,” the expert explained.