Sharps Pixley has released its May 2026 report, highlighting key market movements in the bullion sector. This report provides essential insights for investors navigating the current volatile market.
Liquidity, Inflationโฆand the Return of Volatility
Key Points:
- Equity Rally Masks Underlying Economic Strain – Equity strength amid rising systemic and geopolitical stress points to late-cycle market behaviour, where liquidity-driven forces can temporarily mask underlying fundamental weaknesses.
- Iran Conflict Triggers – Stagflationary Supply Shock Disruptions from the Iran conflict are lifting inflation expectations, while impacting global trade and slowing economic growth.
- ECB Signals Potential Policy Tightening Amid Inflation Risks – The ECB has signalled its readiness to tighten policy in response to renewed inflationary pressures.ย
- Gold Sell-Off Driven by Liquidity, Not Fundamentals – March’s price decline was driven by deleveraging and CTA-driven selling rather than macroeconomic deterioration.
- Risk Signal Remains Cautious with Ongoing Uncertainty – Portfolio allocations are increasing exposure to inflation-sensitive assets while ensuring stability by actively managing risk.
Developments in Financial and Commodity Markets
Chinaสผs stimulus-driven monetary expansion is temporarily stabilising US credit markets. The added liquidity has helped counter the financial stress caused by a sharp investor sell-off in regional banks amid renewed fears of contagion from loan losses and bankruptcies. Meanwhile, the AI sectorสผs closed-loop investing cycle is heightening the risk of a market correction reminiscent of the Dot-com crash. In Europe, fiscal imbalances and political paralysis are demonstrating the limits of debt-dependent growth.
In the first half of 2025, the Bundesbank removed 36,600 counterfeit euro banknotesโworth nearly โฌ2.1 millionโfrom circulation, an 8% increase from H2 2024. Counterfeiting in Germany remains comparatively low overall, averaging nine fake notes per 10,000 inhabitants. The Bundesbank noted counterfeiters are increasingly targeting more common denominations, but which are nevertheless largely being used for higher-value purchases.
The largest increase in counterfeits involved โฌ50 and โฌ100 notes, while โฌ200 and โฌ500 fakes declined sharply. Despite the increase in cases, total financial losses from counterfeiting remained stable. For investors, this could serve as a reminder that gold, bought from a reputable dealer, is not only fraud-proof, but inflation-resistant, universally trusted, andโin 2025โthe strongest performing asset for growing and preserving wealth.
Mercadona’s People-First Approach Fuels Record Growth
Mercadona, Spainสผs largest supermarket chain, has built a reputation as one of Europeสผs best employers by combining above-average pay, flexible work possibilities, profit-sharing, and long-term contracts. Employees earn 27% above the national minimum wage, and this rises to 72% after four years. A family-run company, Mercadona reinvests heavily in digitalisation, expansion, and community initiatives, including food donations and disaster relief. This approach has boosted its employer brand, awarding it second place in Spainสผs most respected brands index. In 2024, the supermarket achieved record growth with โฌ38.8 billion in gross sales and โฌ1.38 billion net profit, surpassing its annual targets.
Precious Metals and Commodities
Gold and silver are likely to experience some sideways movement in the short term as markets absorb the recent rally. Meanwhile, copper, oil, and agricultural commodities are projected to remain relatively stable in the short and medium term. Nevertheless, all precious metals and commodities continue to follow a long-term upward trajectory.
Market Risk Signal
Gold vs Stocks Forecasting Model
The current level of debt relative to real economic output is similar to the situation in the Germanic nations prior to the World Wars in the 1910s, and in France leading up to the French Revolution in the 1790s. In such high-debt scenarios, the likelihood of instability and a deleveraging process is greatly increased. Since gold holdings are typically free from anotherสผs liability, the deleveraging process has a gentler impact on gold prices than on equities. The anticipated deleveraging process can be modelled using coupled differential equations, which suggest that gold will likely outperform stocks from 2022 onwards.
The model was calibrated in 2019 and has not since been adjusted for new input data. According to the model, the peak at which economic activity assets (such as equities) will outperform gold is around Q3 2022. From that point forward, the model predicts an outperformance of gold relative to stocks (light line). When compared to real data on the stock-to-gold price ratio (dotted line), the trend of gold outperforming stocks appears to have begun early in 2022. Whether a short-term reversal will occur remains uncertain; however, the long-term trend towards stronger gold performance remains evident.
Current Investment Situation
Chinaสผs recent stimulus-driven monetary expansion is providing a temporary reprieve for US credit markets, injecting much-needed liquidity into a system under pressure. The move has helped stabilise conditions following a sharp selloff in regional banks, as investors reacted to mounting concerns over loan losses and the spectre of contagion from recent bankruptcies.
While this liquidity boost has calmed immediate fears, the underlying vulnerabilities, particularly in commercial real estate and leveraged lending, remain unresolved. The transitory nature of this support underscores the fragility of the current equilibrium, leaving markets exposed should Chinaสผs stimulus measures lose momentum or global risk appetite wane.
In Europe, persistent fiscal imbalances and political gridlock are exposing the limits of debt-fuelled growth, with policymakers struggling to balance austerity demands against the need for stimulus. The regionสผs ability to sustain economic momentum is increasingly in question, as structural rigidities and demographic challenges weigh on long-term prospects.
Meanwhile, Southeast Asiaสผs resilience is being tested by the โmiddle-income trap,” as weak innovation, a large informal labour force, and constrained access to credit hinder the transition to higher-value industries. Without targeted reforms to boost productivity and foster technological advancement, the region risks falling behind in the global competition for investment and talent.ย
The artificial intelligence sectorสผs rapid expansion is increasingly mirroring the speculative excesses of the late 1990s Dot-com era. A closed-loop investing cycle, fuelled by exuberant capital inflows and skyrocketing valuations, is amplifying the risk of a sharp correction. While AIสผs transformative potential is undeniable, the disconnect between lofty stock prices and near-term profitability is growing more pronounced. Investors are betting heavily on future earnings, but the lack of sustainable revenue models among many AI startups and the concentration of gains in a handful of mega-cap players, could set the stage for a painful reckoning if sentiment shifts or funding dries up.
Allocation Adjustments
The current investment climate is characterised by cautious optimism amid persistent macroeconomic uncertainty. Portfolios are being recalibrated with a reduction in global equities and a higher allocation to bonds, complemented by a greater emphasis on global macro strategies and a modest decrease in cash holdings. This realignment reflects a nuanced approach to risk management, as tail risks have slightly abated, leading to a marginal reduction in precious metals exposure. Investors are increasingly favouring flexible, actively managed vehicles to navigate shifting interest rate expectations and regional growth disparities.
Rolling Three-Month Performance of Various Asset Classes
An analysis of rolling three-month performance shows that active allocation between equities, bonds, and gold has consistently added to portfolio returns. This pattern remains evident over the long term, highlighting the value of dynamic asset management. Although gold has seen a brief pullback as markets consolidate last monthสผs gains, it continues to be the strongest contributor to performance, reaffirming its role as a core diversifier in uncertain market conditions.
The full May Market Report is available to read now.
