Displaying items by tag: metals
Tell us an investment that does well when inflation is rising AND when rates are falling? Most investments are sensitive to one or the other, but gold can benefit from both. Rising inflation (and rates) can lead to gold-buying as a hedge, helping prices, while falling rates make the metal’s zero yield look more attractive (and make it easier for overseas buyers). Yet, conditions in the middle of those two extremes—which have prevailed since the Crisis—are usually bearish for the metal, as it does not have a natural place in the portfolio in such conditions. That said, gold’s outlook is now the best it has been in years, as the economy is weakening and rates look likely to fall, weakening the Dollar and clearing the path for appreciation.
FINSUM: Gold is in the most interesting position we have seen for some time and we are inclined to think it might start to rise out the doldrums.
Al the stars are aligning for gold. The metal has been in an epic slump for years. The great post-Crisis recovery has not been so for gold, with the asset falling in value considerably from its Euro crisis-era peak. However, yields are coming down and the threat of recession is rising, both factors which make gold likely to do well. Not only would both factors help gold because of its relationship to interest rates (i.e. the lower the better), but a weaker Dollar also helps overseas buyers of the metal.
FINSUM: The other interesting non-macro factor that may help gold is the recent huge merger of Barrick Gold and Randgold, which consolidates the market and offers a more compelling mining stock to own. It may also put a lid on supply, which could boost prices.
2019 is shaping up to be a rough year for markets. Growth is weakening, inflation may rise, and the tax cuts’ contributions to earnings and GDP are going to fade. With that in mind, the Wall Street Journal is arguing that gold is likely to be the “best house in a bad neighborhood” next year. One research analyst summarizes gold’s outlook like this, saying “Being long gold has been a tough investment since 2012, and so often, when we see the yellow metal gaining traction, the [U.S. dollar] regains its mojo, and we see the inevitable reversal … However, as we look into our crystal ball and gaze into 2019, emerging warning signs can be seen that suggest 2019 could be the year where gold bulls finally get their day in the sun”.
FINSUM: If asset classes all become correlated and are trending downward, there is a view to gold doing well. However, we are worried about inflation and rates rising, both of which would strengthen the Dollar, and in turn hurt gold.
It might come as no surprise, but that does not mean it isn’t noteworthy. Alongside the big surge in volatility this month, gold has risen considerably. The precious metal has risen 3.2% this month to $1,230 per ounce, no small feat considering that stocks initially started falling because of worries about rising rates. Gold has been shunned for most of the year as stocks rose, but is now being sought out as a haven from volatility. An analyst at UBS summarized the situation this way, saying “Price action in the past couple of weeks has shown signs that gold is slowly reasserting its role as a safe haven … In the near term, a pullback in the dollar, weakness in equities and the potential for a soft patch in US data would be upside catalysts for gold”.
FINSUM: Gold rising when the Dollar is strong and rates are being hiked is quite noteworthy. It will be interesting to see how fast gold might fall if this correction in stocks reverses.
Gold has been in an extraordinary multi-year slump. From its peak of around $1,900 a few years ago, the shiny metal has sunk into a multi-year bear market, recently settling at around $1,200 an ounce. However, a couple of factors are coming together that may mean the bad times are over. The first is that there has been consolidation in the mining sector, but secondly, because the pending trade wars have meant that central banks have been buying more gold as a safe haven. This type of demand rose 8% since last year, and gold buying by central banks is off to its best start since 2015.
FINSUM: Unfortunately, we have to disagree with this article. Buying gold as we move into a higher-rate and stronger Dollar period contradicts all the fundamentals of the market. Furthermore, we think if gold was going to benefit from trade war fears, it would have already started.