Welcome to Thoughts in the Market.

I'm Andrew Sheets, Chief Cross Asset Strategist for Morgan Stanley.

Along with my colleagues bringing you a variety of perspectives, I'll be talking about trends

across the global investment landscape and how we put those ideas together.

It's Friday, February 12th, at 2 p.m. in London.

At Morgan Stanley, we believe that inflation will rise, but that the gold price will fall.

So let me explain why I don't think that's a contradiction and why it's other commodities,

that we think perform best in our central scenario.

Gold has been a store of value for thousands of years, but over the last 20,

it's track record as an inflation hedge is somewhat inconsistent.

From 2003 to 2012, gold did very well in almost every possible environment,

a boom through 2007, a financial crisis in 2008, a recovery in 2009, 2010,

and then a European sovereign debt crisis in 2011 and 2012.

And then, for the next five years, gold did poorly, across a similarly wide range of environments

and moves in inflation expectations, that inconsistency seems pretty relevant.

The type of inflation we're forecasting also isn't particularly extreme.

Morgan Stanley's economists forecast US inflation to rise a little over 2% over the next two years,

so this is hardly the runaway type of scenario for inflation that gold would seem best suited for.

Gold is also an asset where the narrative matters.

2020, a year where gold did very well, saw a global pandemic,

a collapse in economic activity, uncertainty over Brexit and the US election,

and central banks everywhere lowering interest rates to make cash less attractive to hold.

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