Displaying items by tag: gold
It took almost ten years, but gold finally just passed its nominal all-time high (set way back in 2011 during the European debt crisis). That is not a good sign for the market. Gold is rising because of increasing worries about a prolonged economic downturn caused by a renewed COVID second wave. Gold hit $1,944 per troy ounce today, cruising past its previous high of $1,921 per ounce. “Gold has finally come on to Main Street as an asset people actually need to have”, says the CEO of Sprott, a precious metals specialist.
FINSUM: Gold has been helped by fears over the economy, and the fact that rates are near zero, which flatters zero-yielding gold.
Gold has been surging on the back of fears of rising tensions between the US and Iran. The metal just hit $1,600 per ounce, its highest level in almost seven years. However, what is going to drive gold once all of this fear calms down? Gold has been known to spike in times of fear, but the positive effect on its price usually fades quickly. What will really drive gold is the same thing that always does: Treasury yields and their outlook. Ever since the Crisis, the relationship between gold and Treasury yields has been pretty strong. When yields rise, gold falls.
FINSUM: We don’t see a lot of upward pressure on rates right now, which taken on its own might make one think gold has a solid path ahead of it.
There have been two huge beneficiaries of the increased tensions with Iran in recent days: oil and gold. The shiny metal is now at its highest level since 2013 at almost $1,600 per ounce. The difference between the two is that gold seems likelier to stay elevated. Goldman Sachs argues oil would actually need a physical disruption to supply in order to stay elevated, while historically gold is likely to keep rising. According to the bank, “In contrast, history shows that under most outcomes gold will probably rally to well beyond current levels”, says Goldman’s head of commodities research.
FINSUM: Gold certainly has a longer runway than oil for staying high as its rise in prices has nothing to do with a possible supply disruption, which means one doesn’t need to materialize in order for prices to keep moving higher.
Gold had a great first nine months of the year, rising 25%. Since September though, it has been quite bad, falling 7% versus an S&P 500 gain of 10%. So where is it headed? Godman Sachs says the metal still has a strong case. The bank’s research team says “gold’s strategic case is still strong … We expect ‘Fear’-driven investment demand for gold to be supported by late cycle concerns, political uncertainty and high [developing market] household savings”. Even if the Fed increases rates, GS thinks gold will be solid because rates still remain so low, which is a positive for the zero-yielding metal.
FINSUM: If you think the risk-on rally will continue, then stay away. However, if you think the market is going to be flat in 2020 because of political and economic uncertainty, then gold is at a decent buying point right now.
Gold has been doing well this year alongside all the market turmoil and uncertainty. While one could construe recent progress on a trade deal with China as potentially bad for gold—given its status as an uncertainty hedge—the reality is that rates are headed lower via Fed cuts. This means the Dollar will weaken, and in turn help gold. Societe Generale, for instance, is advising a maximum allocation to gold, saying investors should have 5% of their portfolios in it. Additionally, a resolution to the trade war would probably also weaken the Dollar as there would be less desire to take advantage of its safe haven status.
FINSUM: Basically Soc Gen is arguing that gold will benefit from both lower rates and a risk-on trade. The former aspect seems sound, but gold benefitting from less anxiety? Sounds a weak supposition to us.