After more than a decade of stagnation, gold and silver rallied to all-time highs on the back of accelerating inflation, geopolitical crises and monetary debasement, peaking in the first quarter.⁷ Both metals have traded down since, as speculators exited and capital was redeployed into the AI trade. Notably, the selloff persisted even as the war in Iran sent oil north of $100 per barrel⁸ and reignited inflation fears, precisely the environment in which gold is supposed to shine.

Gold has traditionally been treated as a safe haven asset, a hedge in a portfolio against inflation and broader global turmoil. Its behaviour this year reinforces BCV’s long-held view of gold and silver as unproductive assets. Gold’s worth does not come from the cash flows it generates, like equities, but rather from the value the next buyer places on it. On a long-term basis, gold has underperformed equities to a significant degree.⁹ And in fast, liquidity-driven selloffs, the moments a hedge is meant for, gold has tended to fall alongside equities. When leveraged investors are forced to raise cash they sell what is liquid and what has gone up, and this year gold was both. Higher rate expectations did the rest, since gold pays its holder nothing while cash is now expected to return more. The Fund holds a modest weight in gold, sized to reflect this skepticism, as insurance against the scenarios nothing else covers. We continue to prefer productive assets that compound cash flows through full cycles.

Federal Reserve New Governor: Kevin Warsh

Jerome Powell’s tumultuous eight years as Chair of the U.S. Federal Reserve came to an end in May. His tenure saw a global pandemic shut down the world economy for months on end. The response was eye-watering stimulus that held the downturn to a brief recession but subsequently triggered a wave of global inflation. Interest rates rose to levels last seen before the 2008 financial crisis, the “Great Moderation” ended, and the tailwinds that had driven returns in housing, bonds and other rate-sensitive assets turned into headwinds.

Powell’s replacement, Kevin Warsh, arrives at a time when the U.S. government is running massive deficits in recession and expansion alike. Interest payments on the federal debt now exceed military spending¹⁰, which has placed interest rates squarely in the President’s sights.

Warsh has promised a “reform-oriented” Federal Reserve¹¹ and offered a preview at his first meeting in June. The committee voted unanimously to hold the policy rate at 3.50% to 3.75%, where it has sat since December.¹² The post-meeting statement was dramatically shorter and stripped of the forward guidance that had leaned toward future cuts. Updated projections show the median expectation for rates to end 2026 a quarter point higher than today, and nine of eighteen officials pencilled in at least one hike. That is a sharp reversal from March, when the median still pointed toward cuts. Warsh himself declined to submit a rate projection, consistent with his skepticism of forward guidance. He also announced a series of task forces to review how the Fed measures inflation, communicates with markets and manages its balance sheet. The last item ties back to our discussion of gold, as a shrinking balance sheet would ease the monetary debasement narrative that helped fuel gold’s explosive rally.

Each dot represents one committee member’s projection for where the policy rate should sit at the end of each year. The 2026 dots drifting above the current 3.50% to 3.75% range illustrate the hawkish shift by the committee, while the cluster near 3% in the longer-run column marks the level the committee considers neutral. The President nominated Warsh in hopes of ushering in lower interest rates, yet Warsh inherits inflation at a three-year high.¹³ Headline CPI printed 4.2% in May on the back of the energy spike from the war in Iran.¹⁴ Energy prices have since subsided following the memorandum of understanding, and the market will be watching the Fed’s next meeting intently, along with updates from the task forces.