Article last updated 2 February 2026.
Quick takes
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Another week and another round of disruptive policy threats from ‘you know who’. Threats of invasion of an allied country; threats of punitive tariffs on anyone who might stand in the way; even bigger tariffs if I don’t like what you said about me and you’re trying to sign a trade deal with China (hello, Canada!). Yes, 2026 is playing out much as we thought it might. But with limited disruption to financial markets so far.
Even so, it’s all very wearing. As investors we are faced with the task of separating signals from noise. What’s relevant and what can we ignore. This all takes time and energy and potentially distracts us from doing more productive things. Years ago I read a book on the subject of information theory, and it claimed that humans expend far more effort on filtering out what’s not relevant than focusing on what is. It’s like chiselling away at a massive block of stone with a toothpick to create a much smaller sculpture.
Thinking fast and slow
Hence a tendency for us to fall back on the sort of ‘System 1 and System 2’ approach popularised by Daniel Kahneman in Thinking Fast and Slow. System 1 allows us to take mental shortcuts and use ‘instinct’ to make most of our decisions, and it tends to work well. But this approach is subject to error because biases can creep in, or instinct based on historical experience can fail to adapt to changing circumstances. ‘System 2’ applies much more rigorous analysis to the situation, tending to result in much better answers to complex problems. But it takes a lot more time and resource and is not especially well suited to fast-changing situations.
The tension between the two systems is often evident in investing. When the facts change, it usually makes sense to reassess your position. Many of the most successful traders can change their stance on a sixpence (computers are even better!). At the institutional level, the ‘supertanker effect’ comes into play, with multiple committees comprised of members with their own biases having to rubber stamp any change of direction.
Greenback blues
I have been regularly amazed during my career in the City when developments that seemed to me to be fully discounted were certainly not. When you’re on the front line (and offering advice and opinions as opposed to managing the portfolios), it’s harder to put yourself in the slower-moving shoes of the decision-makers. Bearing that in mind, what market movements are attracting my attention today? I would say there are three main ones: the weakening of the dollar; the strength of precious metals (figure 1 shows gold’s almost vertical climb); and the shifting of market leadership away from the small group of technology shares that have come to dominate the indices (which I will cover in more detail in next week’s Monthly Digest).
Figure 1: Gold’s inexorable (?) climb
The first cracks in the dollar appeared last April when the Liberation Day tariffs were announced, but the currency has been relatively stable since then, reaching the bottom of its current trading range last October. We argued at the time that there was insufficient evidence for a wholesale exit from dollar-based assets. This view was based on the lack of viable alternatives for liquid (i.e. easy to buy and sell) reserve assets and the dollar’s continued dominance in global trade.
No doubt we will have to revisit those opinions in the light of current events, but staying cognizant of the risk that introducing currency hedges can substantially change our returns relative to benchmarks.
It's also worth noting that our strategic regional allocations are already predicated on a long-term decline in the dollar against sterling, and so further hedging could be seen as ‘double counting’.
More precious than ever
Because most commodities are priced in dollars, one would reasonably expect their dollar price to rise when the dollar weakens, to retain their global value. But this year’s moves in precious (and base) metals reflect much more than that (figure 2). Gold has punched through $5,000 per ounce, and was up 18% so far in this month alone, while silver is up more than 50% in 2026, moving through $100. The core buyers since 2022 have been central banks replacing some of their dollar reserves with gold. This was a diversification trade driven by fear of dollar-denominated assets, such as Treasury bonds, being frozen by the government in the event of future conflict. And remember that this was under a Joe Biden-led Democratic government.
Figure 2: Gold strength > dollar weakness
While central bank reserve buying has continued, there are signs of greater allocations being made by individuals and institutions, as the concept of ‘dollar debasement’ gains more traction.
This can be seen in the known holdings of gold in ETFs (passive investment funds). They haven’t regained the levels of 2020 (in terms of ounces of gold held), but they have been moving steadily higher since April last year, which coincides with Liberation Day. The exposure today in dollar terms is multiples higher.
The biggest problem with gold, other than storing it securely if you buy it in physical form, is valuing it. The long-standing rule of thumb that an ounce of it will always buy a good quality ‘decent’ men’s suit is taking us into bespoke Savile Row territory now. However, if that’s anticipating greater debasement of fiat (paper) currencies through inflation, then it might well be justified. Try thinking not of the value of gold going up, but of everything else going down on a relative basis.
As for metals in general, there is increasing discussion of a new world order in which a combination of factors will increase demand (we’ll be discussing this in a spotlight on metals mining in our next Investment Insights magazine, due out in early February).
Figure 3: Base metals are also on the rise
As always in our investment process, we are never going to ‘bet the farm’ on a single specific possible outcome. But we continue to weigh up all of these risks and opportunities when constructing balanced portfolios.
Don’t be greedy!
I’ll leave you with a final quote from Warren Buffett, as he was musing on the demise of the hedge fund Long Term Capital Management in the late 1990s. It’s an opinion that we should always bear in mind when tempted to take too much risk with our investments. LTCM was (in)famously founded and run by a hugely experienced and successful group of well-heeled investors including various Nobel Prize winners. But, as Buffett commented: