Famed investor Ruchir Sharma says gold looks disconnected from fundamentals and prices are being driven by 'random stories'
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- Gold's explosive rally isn't grounded in fundamentals, Ruchir Sharma says.
- The Rockefeller chairman said he believes investors have coming up with stories about why it's risen so much.
- He recommends investors diversify into other commodities.
The explosive rally lifting gold prices since the start of last year looks alarmingly disconnected from any fundamental reality, with investors coming up with narratives explain its rise, a veteran investor says.
Ruchir Sharma, the famed economist and chairman of Rockefeller International, flagged the blistering rally in gold prices as a potential concern for investors. The precious metal saw a historic sell-off in late January, but is still up 74% over the last year, making it one of the market's best-performing investments.
Speaking to CNBC on Monday, he pointed to how the metal's current rally didn't look supported by fundamentals, similar to the rally that took place in the 1970s before fizzling.
"I've been quite bullish on gold for many years but what I have to admit, given the parabolic price action of the last few months, is that it's totally disconnected from any fundamental story," Sharma said, referring to how gold rallies have historically been fueled by more concrete factors, like rate changes or inflation.
Investors have come up with "stories" over the past year to explain gold's increase, Sharma said. He pointed to talk about how gold's rally has been fueled by uncertainty around tariffs, rising deficits, and the potential for hotter inflation in the US. However, those risks don't seem to be reflected in other safe-haven assets, he added, pointing to relative stability in bonds and the US dollar in recent months.
Gold's record-breaking streak in the 70s ended when the Fed began raising interest rates in 1980 to combat inflation. Higher rates make the US dollar more competitive as a store of wealth compared to other hard assets, which led bullion to plummet more than 50% from its peak in 1980 through mid-1982.
Though Sharma said he saw "little chance" of the Fed raising interest rates anytime soon, he said he recommended investors "spread out a bit" by investing in other commodities.
In a column for the Financial Times this week, he added that his view on gold had shifted from "bullish" to "more agnostic."
"In a market divorced from fundamentals and driven by an increasing number of random stories, it is hard to know which narrative is for real and will hold," he wrote.