Lead-Lag Live

Alex Shahidi: Gold, Risk Parity & Why 60/40 Is Broken | Lead-Lag Live

• Michael A. Gayed, CFA

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Alex Shahidi, Managing Principal at Evoke Advisors and co-portfolio manager of the RPAR Risk Parity ETF and UPAR Ultra Risk Parity ETF, joins Michael Gayed on Lead-Lag Live to unpack why gold belongs at the core of a modern risk-parity portfolio — and why the traditional 60/40 keeps failing in inflationary regimes.

In this first of a new series of narrower, single-topic risk-parity conversations, Alex walks through the three-step framework behind RPAR and UPAR, explains why correlation is a byproduct rather than a driver of diversification, and makes the structural case for gold as an anti-paper-money hedge against fiat debasement, sovereign debt monetization, and central-bank de-dollarization.

Topics covered:

(00:00) A different kind of Lead-Lag Live — post-close, single-topic risk-parity series with Alex Shahidi

(00:57) The three-step risk-parity framework: diverse asset classes, risk-balancing, and rebalancing

(02:15) Why the traditional 60/40 concentrates almost all risk in stocks

(02:44) Correlation is a byproduct — the four economic environments that actually drive returns

(04:26) Adding assets with the opposite inflation bias: gold, commodities, and TIPS

(04:50) The growth-vs-inflation quadrant framework and reading market-implied environments

(06:18) Gold as an investment: cutting through the gold-bug and gold-skeptic extremes

(07:13) The 55-year track record — gold's return, low correlation, and diversification value

(08:40) Inside RPAR: why gold is separated from commodity producers as its own bucket

(09:53) How gold behaves like a bond in a downturn — the Q1 2020 case study

(11:20) When gold doesn't outperform: the liquidity-tightening exception

(12:17) The narrative around gold — why every asset needs a story for capital to flow

(13:15) Fiat debasement, currency printing, and gold's structural tailwind

(14:43) Central-bank de-dollarization since 2022 and the shift into gold reserves

(16:08) The bear case: what would derail gold from here

(16:33) "Why buy something that yields nothing?" — the pricing-power counterargument

(18:24) Building a portfolio with meaningful gold exposure to balance equity risk

(19:41) Bullish on diversification, not predictions — the discipline of rebalancing

(20:39) Closing thoughts on the new single-asset-class series with Alex

About Evoke Advisors: Evoke Advisors is a Los Angeles–based independent wealth-management firm. Alex Shahidi co-manages the RPAR Risk Parity ETF and UPAR Ultra Risk Parity ETF, applying a systematic risk-parity approach designed to balance exposures across the four macro environments — rising and falling growth, rising and falling inflation.

Where to find Alex Shahidi:

The Lead-Lag Report: Get Michael's institutional-grade macro research and market analysis. leadlagreport.com

Sponsored by Evoke Advisors: Evoke's risk-parity strategies — RPAR and UPAR — offer diversified exposure across global equities, commodities, gold, and treasuries designed to perform across all four macro environments. Learn more at evokeadvisors.com.

Disclaimer: The content of this podcast is for informational purposes only and is not intended as personalized investment advice. Views expressed reflect the current opinions of Michael A. Gayed, CFA, and guests as of the date recorded, are subject to change without notice, and do not represent the views of any firm or entity. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Consult a qualified financial advisor before making investment decisions. Lead-Lag Media and its principals may hold positions in the securities discussed.

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Welcome And Format For Live Qs

SPEAKER_00

This is the first time I'm doing a uh lead lag live episode after the close.

unknown

I think.

SPEAKER_00

Could be way off on that. But uh for those that are still on X and all the various platforms, uh, I'm glad you're not trading so you can focus on this interview. Uh, this is a live interview with Mr. Alex Shahee of Evoke. Uh, going to be talking about uh different take on uh how we do these interviews with Alex the next uh three, four sessions here. If any of you have any questions during this live conversation, don't hesitate to put it on whatever social media platform you're watching this on. I'm happy to bring it up. Uh and as always appreciate the uh the people that engage positively on social media. Uh, I think as I've become more comedic, I'm getting more and more positivity. Uh funny how people want to be entertained more and uh maybe learn some new things. But uh we're gonna try and do both here. So with that said, my name is Michael Guy and I'm the publisher of the Lead Lag Report, founder of Lead Lag Media. Joining me is Mr. Alex Shahidi of Evoke, uh, the man behind a couple of ETFs, uh RPAR, the risk parity ETF, and you par the ultra uh risk parity ETF, you can argue. Um, and what we're gonna do this time is we're gonna focus these conversations more around the individual components of what goes into a risk parity framework. But before we do that, Alex, let's just set the stage and explain what exactly a risk parity framework is, and then we'll get right into it.

Risk Parity In Three Steps

SPEAKER_01

Well, I think the simplest way to think about it is, and this is the way I think about it, is it's just a balanced allocation. And that that name risk parity can mean a lot of different things. I basically think of it as there's three steps you follow. The first step is pick diverse asset classes. So we pick uh global equities, uh commodities, including gold, which we're gonna talk about today, uh, tips and treasuries. So that's a diverse mix of assets because they do well in different environments. Then you balance them, and that's where the risk parity part comes in, which basically means you overweight lower volatility assets and overweight lower or higher volatility uh assets, or I guess the other way, own more of the uh less volatile assets and own less of the more volatile assets. So you get equal risk contribution. So then you end up overweighting bonds, underweighting stocks and commodities. And then you have a balanced allocation. And the third step is lever it to the desired target return and risk. So I think that's just a more efficient way to get returns long term than uh the traditional framework, which is own a lot of stocks, add some bonds to diversify, and you end up with a portfolio that has almost all of its risk and stocks.

SPEAKER_00

And risk obviously changes uh if you view risk as drawdown risk, uh, depending upon what cycle you're in and let's call it what quadrant of the economy you're in. Let's

Growth And Inflation Drive Returns

SPEAKER_00

let's get into the the construct of these different quadrants, inflation, growth, high, low, the mixture of those.

SPEAKER_01

Yeah, the reason I look at it that way through that lens is what a lot of people do is they look at assets and say, what's what has a low correlation with what? And I want to, that's it, those are good diversifiers. But the correlation is just the byproduct of the environment, which is what you just described. Growth and inflation are the key influences on asset classes. That's what fundamentally drives the returns. Um, and that's for fundamental reasons. It's mechanical. Uh, and these are the things that the Fed tries to manage, these are what impact the cash flows and how those cash flows are valued. So if we go back to the main drivers, these asset classes that I describe have certain biases to growth and inflation, and it's really the surprises. You get upside surprises, downside surprises. And by the way, it's roughly 50-50 over time because the market's somewhat efficient in uh discounting future expectations. So when growth surprises the upside, it's a tailwind for stocks. And it's the opposite when it surprises to the downside. Um, and bonds tend to have the opposite bias. So, treasuries, for example, when growth surprises the upside, it's bad for treasuries. And when it's the downside, it's good for treasuries. So, in an environment where the only thing that moves around is growth, then stocks and bonds are good diversifiers. But when inflation is a problem, like it is today and has been for some time, and like it certainly was in the 70s, in that type of environment, stocks and treasuries have the same bias to inflation. They do better when it surprises the downside. So, like in the 1970s, uh, treasuries and stocks both underperformed cash for a decade. They had high correlation to one another, not good diversifiers. It's because inflation really moved around. And so you have to add assets that have the opposite bias to inflation. So that's things like gold and commodities and tips. So that's how you get into uh a more diversified allocation, not by studying correlation, uh, because we know it's inherently unstable. It's by building an allocation that's premised on the key factors that drive these asset classes, which is essentially growth and inflation. Those are the main drivers.

SPEAKER_00

I put together a uh, as you were talking, uh, since my AI agents are listening live, uh, I put together a uh a little quadrant look at sort of that that idea of you know rising growth, falling inflation, falling growth, falling inflation, you know, sort of what um those quadrants, what asset classes tend to do better uh depending upon those

Why Forecasting Regimes Fails

SPEAKER_00

environments. The question, of course, is how do you even determine uh what environment you're in? I I my my assumption is gonna be uh that with the risk-parity framework, it doesn't matter how you determine.

SPEAKER_01

Yeah, and so that's true. So it's a couple things. One is you don't really know what environment you're in until after the fact. And one way to assess that is by just looking at market returns. That's so that the quadrants that you put there, if you, if growth, if stocks are doing really well, you're probably not in a you know economic downturn and probably not in a you know a rising inflation environment. So so part of it is just looking at the markets. And then and then most importantly, I think those things are very hard to predict because it's again, it's versus what's discounted. So for example, if the economy grows 4%, that's not necessarily good or bad by itself. If the market was expecting six, four is bad. If the market is expecting two, four is good. It's the same four. So so rather than trying to guess, which we know is hard to do, uh, you'll be wrong a lot. And the fact that you may not even know until after the fact, I think it's just better to be balanced so that you don't you're not dependent on making the right guess.

Gold Weighting And Long Run Data

SPEAKER_00

Okay, so let's let's get into gold in particular as um as an investment option. I think a lot of people, when you think about gold, you either have the extreme gold bugs that are all in, then you've got this sort of more traditional asset allocation argument of just put 5% in a portfolio, 10% maybe max, you know, depending upon how aggressive you are. But I rarely hear advisors talk about more than that. Um how's the how's the gold weighting in a risk parity portfolio compare?

SPEAKER_01

So we we target 10%, but but I think what's interesting about gold is as you mentioned, it's polarizing. I think of it as many, many sophisticated investors will look at gold and say, it has no cash flows, it has no yield. I don't really know what the fair value is. And and furthermore, it doesn't really have much use. You can use it for jewelry, but not much industrial use. So, what what is this shiny yellow metal good for? I know it's been around for a long time and people treat it like money, but why should it have a risk premium? Why should it have returns? So I think it's a reasonable argument. But what I look at is what has been the return of gold since 1971 when uh we came off the gold standard in the US and it was no longer fixed to the dollar. So since 1971, it's earned like 9% a year. So, which is uh roughly the same as global stocks for 55 years. So I look at that and I say, okay, well, there's something going on there. The correlation has been low, the diversification has been very high. You know, and you look at those uh decades since the 1970s, the 1970s and the 2000s were the two best decades for gold. Those were the two decades where the stock market underperformed cash. And then the two best decades for the stock market, the 80s and 90s, gold was negative. So remove the name and say, hey, we've got this ASA class. On average, zero correlated stocks, highly diversifying, similar return of stocks, liquid, anybody can buy it. And it's actually relatively tax efficient because it has no yield. So, like you describe it that way, you're going on a blind date with an ASA class, and I give you that description, you'd be like, I want that one. Yet people are really opposed to it. So I just find it really fascinating. So if you just followed the data, you probably and you put it in an optimizer and you provided that data, it probably put a high allocation to gold. Uh, but obviously that's not typical because of the other issues with, you know, it sounds very speculative.

SPEAKER_00

Um

Gold Versus The Rest Of Commodities

SPEAKER_00

RPAR, your ETF breaks up, breaks commodities up by commodity producers and then gold itself. Why, why have that distinction?

SPEAKER_01

Yeah, I think of it as in the world of commodities, you know, which are good inflation hedges, um, there's basically two types. There's gold, and then there's everything else. And the reason I draw the line there is because gold is more of a currency and a storeholder wealth. And it doesn't, as I mentioned, it doesn't have much industrial use, whereas all the other commodities are used for something. So think of them broad categories of energy. Um, there are miners, you know, that are extracting uh industrial metals, precious metals out of the ground. Uh, a lot of that actually goes to AI to build infrastructure. And then the other component is agriculture. So if you look across that landscape, everything but gold has some industrial use. So its price is more sensitive to the economy. So when they when growth is doing well, upside surprise of growth tends to be a tailwind for all commodities. Gold is almost the opposite. It has it acts in some ways more like bonds, where if you get an economic downturn, you tend to get this flight to safety. Um, and gold, because its demand doesn't necessarily go up and down with the economic cycle, isn't impacted by an economic downturn, whereas all the other commodities are. So you saw very uh specific examples in uh 2008 when commodities got crushed and gold was up. Uh when COVID hit in in Q1 of 2020, gold was up and the other commodities went down a lot. So I think of it as it has a different behavioral bias based on the economic environment. So I that's why I draw the line there.

SPEAKER_00

And the key term or key idea there is it tends to, right? So I myself had done the study where if you look at the top 20 largest drawdowns on the SP and saw how gold behaved during those major drawdowns, you know, there are plenty of times when gold is up, uh plenty of times when gold is down less in a few instances where it's actually, you know, kind of neck and neck. But on average, during the major stress periods, gold does seem to act as a much better relative play.

SPEAKER_01

Yeah, and and I think it goes back to what caused a downturn. So was the cause of the downturn an inflation spike, in which gold would probably hold up much better? Was the cause of the downturn a big economic contraction, in which case gold you would expect to do better because it has that bias? Or was the cause of the downturn a significant tightening of liquidity, in which case gold may not outperform, right? Because it has a similar bias to a tightening of liquidity. Like, for example, 2022, uh, it did outperform, but it could have easily underperformed because you had a period where cash went from zero to five and gold competes with cash. I think in a normal environment, if if I told your interest rates are going from zero to five, I would think gold would underperform equities because it competes with cash and has no yield. So it's more attractive when cash is yielding zero versus when it's yielding five. But that was also a period where you had these structural tailwinds for gold. Uh, and we can get into some of that. So I think of it as you can't just look at stocks down, what happened to gold. You have to look at why were stocks down and go back to that, you know, the four quadrant framework.

Gold As Anti Fiat Trade

SPEAKER_00

On um on X, the Bitcoin maxis will say something like, Bitcoin doesn't need a narrative. And it's like, this is nonsense. Everything needs a narrative because money needs a reason to go into something, at least from my perspective. Um, I'm curious how you uh how do you think of the narrative around gold from uh let's call the public's point of view? It seems like there's different ways to think about it. You can view it as a crisis tailhead, you can view it as a as a real rate play. We know how historically gold usually does well during negative real rates, this period being an exception with a positive real rate environment. Um and a lot of people just say it's a currency debasement hedge, right? I mean, do you do you try to think of it in terms of any of those narratives yourself?

SPEAKER_01

Uh I think mostly the latter, and and I think there's elements of everything that you just described. Um, but I think of it as as my explanation for why gold is up 9% a year for 55 years, uh which is a number that surprises a lot of people, is I think of it less about gold going up, and I think of it more as the faith in paper money going down. And and the faith, and so I think of it as the faith in the value of paper currency, fiat currencies. And you you talked about debasement of currency, and I think it has a lot to do with that. Uh gold is not, you can't really debase it. You know, there's a finite supply of gold. Um, and it's kind of the oldest form of money. And we came off the gold standard because people had faith that, okay, paper money is is valuable, we trust the government, we trust the system. And I think when you go through stretches where there's less trust and less faith, that can propel the price of gold significantly higher. So that happened in the 70s. Gold averaged 30% a year for a decade. And then when we got to a point where rates went up a lot and the economy started to recover, um, and then you had this falling tailwind of interest rates and strong economic growth. Um, then all of a sudden there wasn't as much interest into the shiny yellow metal and gold was negative for 20 years. And then that changed during the uh the internet uh bust and then also during the GFC. So um, so I think it's effectively like an anti-paper money trade. And so I think of that as like a probably a structural tailwind. And and I think about where is the if you had to draw a chart of the faith in paper money today, is that going to be higher or lower 10 years from now? My guess is it's probably there's probably less faith in paper money 10 years from now because we have massive debt. That's not getting smaller, it's accelerating. Uh, we know that the easiest way out of your debt problems is to monetize and to print currency and debase your currency. So it seems like that's becoming more widely appreciated, that that's the likely path. And the further you go, the more pressure there is. Um, and then that the other big structural tailwind, I think, is what happened with Russia-Ukraine in uh a few years ago and the weaponization of the dollar, that put a lot of countries on notice that have these reserves that were largely in dollars. They probably want to own less dollars and more gold. And that takes time. So you you saw a structural shift with central banks uh and and sovereign funds buying more gold. Uh, and there's a finance supply, so you can't you can't buy a lot quickly. And that tailwind, uh, my guess is will continue as well.

SPEAKER_00

I used to um contribute writings to Mark Favor of the Gloom, Boom, and Doom report. Uh he was actually one of the first guys to really kind of give me a chance to put some thoughts out back in 2011. And um I remember him saying uh in a media interview that gold is the way you short central banks. And I thought that that was very well in the in which it goes back at the debasement argument, right? It's I even put out a post out when Warsh um was speaking and you know, was officially the Fed chair, uh saying that the bearish case for gold is Warsh, if Warsh is going to be disciplined, depending on how many of these task forces he's doing, right? Which is seems like every other thing you can task force he's

Answering The No Yield Objection

SPEAKER_00

doing. Um but but there's there's another aspect of so there'll be people that conceptually understand the basic argument, but they'll they'll still say fundamentally, how do you invest in something that has no yield? You can't value it. Right. I mean, and I think that's that's a completely valid argument. And that's more kind of like the bowl head mentality, right? So, what would be your your response to the idea that, you know, why would you buy something that doesn't yield anything?

SPEAKER_01

Um well, there are other things that don't yield anything that people buy, but but set that aside. So I think of it as part of a diversified portfolio. So and I and I'm building, I have these tools that I'm building a diversified portfolio. And so the characteristics you're looking for are things are assets that you think might have an attractive return and are diverse. That those are like the two criteria. So gold over the next 10 years, I don't care if it has a yield or not, it could definitely go up a lot because of the debasement of currency and and kind of the short uh Fed trade. Um, there's a lot of reasons it can go up. And you know, last year was the best year since 1979. Uh so that there's something going on there. It's not just totally random. Uh, and there's gonna be a lot of buying of gold with central banks. So, regardless of whether it has a yield or not, the price is there's a decent chance it can rise and it could easily outperform equities over the next 10 years, especially where valuations are today for stocks and particularly US stocks. So, so that part of it, we don't know, but you can make a reasonable argument why the price would go up. Then the diversification point, that is much, that's a much stronger argument. You know that it's diverse. It the fact that it doesn't have a yield, it doesn't produce anything, makes it diverse to something more productive like stocks. So the fact that it you can make an argument for it could have an attractive return and you know pretty reliably that it's diverse makes it a very interesting part of a uh potentially interesting part for a diversified portfolio. And and so if you think about how much risk you have in stocks versus how much risk you have in gold, most people have zero risk in gold and they have a lot of risk, almost all the risk in stocks. It seems like you you should at least have some gold um to balance uh some of the risk you have elsewhere.

SPEAKER_00

Yeah, and this is, I mean, it's not showing the the time frame of the calculation they're made from, but the broader point of uh the right pain there, 60-40 portfolio. Yeah, you'll you'll add gold, you lower the uh return, at least based on whatever timeframe this is looking at, but the the risk is lower also. So and that's what diversity is supposed to do. It's supposed to give you a smoother ride.

SPEAKER_01

Yeah, and you might get both both sides of it. You may reduce your risk and increase your return. So, as I mentioned, like gold is has the same return as equities for 55 years. It's outperformed the SP since the turn of the millennium. You could see you could make a pretty good case that it could outperform over the next decade based on where valuations are. So you may be able to get the diversification benefit and improve your returns if all of that plays out.

SPEAKER_00

Um, like I said, folks, this is meant to be a different type of uh conversation on the risk parity side just to kind of focus on individual buckets. We're gonna try and do this you know once a week to cover the the different parts of RPAR. Um any kind of closing thoughts here, Alex? I mean, I think we covered a lot of good big picture things around gold uh and reasons to own it, but in particular gold as a as a player in a portfolio. Um anything that we miss you think we should hit on?

Rebalancing Discipline And Wrap Up

SPEAKER_01

Yeah, I think of it as you don't necessarily have to be bullish or bearish to include these asset classes. So I'm bullish on diversification. I think it works over time, and I'm much more focused on is this the right time to own asset A, asset B, asset C? I think of it as these all are all assets that over time should appreciate. So I have confidence that there'll be reasonable returns over time. I don't know when the good and bad periods are going to come. And I'm confident of the diversification benefits. To me, that's all you really need to do. And when something underperforms, you just buy more, you're rebalancing. So I know the math of diversification works over time, and I know the math of rebalancing works over time. And I'm much less focused on how is it done recently and how do I expect it to do over the near term? Because I think those are just lower probability guesses, as opposed to uh having greater confidence at diversification and rebalancing work over time. So that's what I try to emphasize. So I try not to be a gold bug. I just think of it as this looks like a really interesting asset class and it fits within a balanced framework. So I think that's the main point I try to emphasize.

SPEAKER_00

I think it's a good place to wrap up this uh quick 20 minute conversation. Appreciate those that watch this. Looks like I actually got a pretty good audience. So I guess people are watching uh X outside of the market, uh, at least on FinTwit, FinX, whatever you want to call it. Uh special thanks to Alex. We're gonna do another uh bucket next week, and hopefully we'll see you all in the next episode of Lead Lag Live. Appreciate it, Alex. Thank you. Cheers everybody.

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Michael A. Gayed, CFA

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