Message in gold’s bad vaccine year

It’s been 12 months. On November 9 last year, Pfizer Inc awoke the world to the triumphant news that it had developed a vaccine for Covid-19 that worked.
It was one of the clearest market turning points in memory. As far as most of us were concerned, it was also one of the best items of news we could remember. It came as a double whammy, with the market also having its first chance to react to the announcement over the weekend that Joe Biden had emerged victorious in the presidential election.
There are different ways to measure the stock market phenomenon of momentum — the tendency of winners to keep winning and losers to keep losing — but there’s a fair argument that vaccine saw the biggest reversal on record. Money surged into stocks that would benefit from an end to the pandemic, and out of 2020’s
established winners. It appeared to be the moment when value investing could take over again. Judging by Bloomberg’s FTW function, that promise wasn’t totally fulfilled. This is how momentum has fared compared to value over the past year: By coincidence, the end of last week brought one of the best news developments since then, with Pfizer’s statement that it has a pill seemingly capable of keeping Covid patients alive and out of the hospital. That helped a fantastic run for the sectors most harmed by the pandemic.
The last 12 months have seen a steady rise in inflation, yet gold has taken a drubbing. That is weird, because the precious metal has long been regarded, more or less correctly, as
a hedge against inflation
and monetary debasement. There’s been a lot of both inflation and money-printing in the last 12 months, and yet gold has declined, with miners of the metal becoming the single worst-performing sector in the S&P 500. We would have
found this even harder to predict if we had been told a year ago that real yields would stay solidly and historically negative. Gold has no yield and historically has a strong inverse relationship with real yields. The less bonds pay after inflation, the less unappealing gold will appear. But real yields have remained bafflingly low.
There is only one other period since the crisis that looks anything much like this. Unfortunately, that was in 2012 and early 2013, when real yields stayed low during the Federal Reserve’s “QE Infinity” and gold began to fall. It turned out on that occasion that the price was telling us something. The spring of 2013 saw first a dramatic fall for gold and then the “taper tantrum” as bond yields shot upward in response to a hawkish Fed.
Another indicator looks surprising. The ratio of stocks to gold, the effective price of the S&P 500 in ounces rather than dollars, has stayed surprisingly constant since Richard Nixon removed the US from the last vestiges of the gold standard in 1971.

—Bloomberg