By John McDonald
After spending several years in a relative calm, gold is once again the spotlight, analysts say. And this time, it’s not going anywhere.
The gold market is returning with a full show of strength, and precious metals analysts and investors say they are confident that the yellow metal will continue to perform into 2020. After breaking through the “$1,400 ceiling” this summer, 2019’s gold performance is particularly impressive relative to other precious metals.
That ceiling had been in place since 2013, when the gold market corrected. While gold neared that ceiling several times prior to June 2019, it never broke through until this past summer. This could mean the rally has much longer “legs” than many gave it credit for.
Although some analysts had predicted a slow-down earlier this year, a number of factors are keeping gold strong. 3 factors, in particular, stand out:
The ratio indicating how many ounces of silver it takes to purchase one ounce of gold has long been considered an indicator for the market performance of both precious metals. At the end of Q3 2019, the ratio was hovering just under the all-time high of 92x set in June 2019. This is about 33 percent above the long-term average for this metric.
When this metric is high, the subsequent 12 months have historically been good for gold, so this is a good sign for 2020.
Although all precious metals have been doing relatively well thanks to their “safe-haven” status as investments resistant to volatility, only palladium has outshone gold in 2019. Palladium is used in automotive manufacturing, and palladium demand is still robust.
This is a good indicator for gold since its closer “cousins,” silver and platinum, appear unable to compete with the yellow metal even in today’s turbulent economic environment.
Although China and the United States say they are on their way to resolving tariff tensions, most investors expect the global economy to remain somewhat unstable throughout the 2020 presidential election and, depending on the results, long past it. No matter your political leaning, any uncertainty in the U.S. and global markets is actually a positive thing for gold values. This trend has been compounded by the Federal Reserve’s unconventional monetary policies, which have kept investor capital firmly in gold even as the stock market sets record highs.
Trade wars, unclear monetary policy, and political uncertainty will keep gold values strong in the next 12 months, particularly given the additional uncertainty associated with any presidential election.
Source: Institutional Investor