By John McDonald
Gold closed out the week last week at levels that will likely enable the yellow metal to end the year with a 15 percent increase in value for the whole of 2019.
That will be the biggest rise in value since 2010, when gold prices climbed nearly 30 percent in response to the Great Recession.
2019 has been a banner year for investors holding gold in their investment portfolios.
“Gold has seen considerable safe-haven buying from investors concerned [over] low and negative yields in the bond market and fearing a possible downturn in equities,” explained George Milling-Stanley, a chief gold strategist at State Street Global Advisors.
Milling-Stanley added that the benefits extend to gold exchange-traded funds (ETFs) as well.
They have been “feeling the benefit of strategic asset allocation type buying by institutions and individuals,” he said.
Gold ETFs are funds that consist of just one principal asset, gold, and that behave like individual stocks.
They are a good measure of investor sentiment on gold because they are backed by gold, and many investors feel that buying shares in gold-backed ETFs is the same thing as owning gold.
However, in reality, gold ETF shares are liquidated into cash, not into gold ownership.
Investors wishing to hedge their bets against inflation and global economic volatility with gold ownership generally prefer owning the actual asset rather than shares representative of the yellow metal.
Regardless of your preferred metric for tracking gold sentiment, the precious metal’s rise has been meteoric since June of this year.
In fact, Milling-Stanley admitted he was “surprised” at how quickly gold rose from $1,350 per ounce this past summer to nearly $1,500 per ounce in mid-December.
This rise in value “constitutes the upper bound of the trading range that has been in existence for six years,” he said.
The analyst cited Federal Reserve Chairman Jerome Powell’s comments in June that he would adjust interest rates over the latter half of the year for much of the movement.
At that time, Powell predicted the Fed would “make a mid-cycle adjustment and give the markets the interest rate cut they had been clamoring for,” Milling-Stanley related.
Compounded with a predicted “deadline” for that action of September 2019, gold rose to more than $1,550 an ounce in September.
Although the promised interest-rate cuts did keep investors in the financial markets happy, they also made investors nervous.
The move was unconventional since the economy was already expanding.
Those nerves, particularly when it came to future inflation, led to peak prices of $1,560.40 per ounce in early September.
Milling-Stanley said he hopes for “modest, sustainable gains in gold over the coming years” but did not discount the “power the speculative community can have over gold in the short term.”
He concluded that “speculative community” will be likely to jump into the market more quickly in the coming century.
“I don’t believe [they] will want to once again risk missing the first 10 years of a bull market in gold and the first $1,000 rise in the price as they did at the beginning of this century,” Milling-Stanley said.