Gold continued to rally last week, with the price in United States Dollars
at one point surging beyond USD 1,350oz. In Australian dollars, it hit a new
all-time high above AUD 1,950oz, continuing a strong upward trend that has
been in play since late April this year.
The table below shows the price of gold and silver (in both AUD and USD),
as well as the performance of the S&P500 and the ASX 200 over the past
week, month and year. It shows gold outperformed equity markets, though
silver lagged.
The rally in gold has been driven by a handful of factors which include
-
• A continued plunge in global bond yields,
with US 10 year bond yields now sitting at just above 2%. Since late 2018,
the market value of debt trading with a negative yield has almost doubled and
currently sits at approximately USD 12 trillion, according to a 17 June
article published in The Financial Times.
• Expectations of monetary easing by the US
Federal Reserve (Fed). Some economists see the Fed cutting interest rates as
soon as July 2019, with PIMCO, the world’s largest bond fund manager,
suggesting the Fed might cut rates by 0.50% if “tensions between the US
and China are not at least scaled down before or during the G20 meeting in
late June”.
• Continued volatility in equity markets
worldwide, with the S&P500 dropping by almost 7% between early May and
early June 2019, though it has since recovered some of these losses.
• Escalating geopolitical tensions in the
Middle East, with two oil tankers attacked in the Gulf of Oman last week.
Australian dollar investors in gold have also received a boost from
continued weakness in the local currency, which is back below USD 0.69.
Markets are now pricing in at least two more interest rate cuts by the
Reserve Bank of Australia (RBA) over the next year.
If the RBA delivers what the market expects, we may see added demand for
precious metals, especially if it’s accompanied by continued media
speculation about the potential for quantitative easing (increasing the money
supply) in Australia.
High Profile Investors Turning to Gold
Given the recent rally in gold, it is no surprise to see it find favour
among high profile investors. Stephen Innes, Head of Trading and Market
Strategy for Vanguard Markets, stated in an article published on 17 June: “Gold
is reclaiming its rightful status as a must-have safe haven asset in
everyone’s investment portfolio”.
Innes went on to state that he is “unwaveringly bullish on gold and
continues to buy as it remains one of my highest conviction trades into
2020.”
DoubleLine Capital’s Jeffrey Gundlach, known in financial markets as the
“Bond King” stated he was long gold in an investor webcast last week. He
noted that he expected the US dollar to fall between now and the end of 2019,
while he also sees a greater than 50% chance the US will enter recession
within one year.
Finally, billionaire Paul Tudor Jones, fund manager and founder of Tudor
Investment Corporation has said gold is his favourite trade for the next
12-24 months. In an interview with Bloomberg last week, Jones noted that gold
has “everything going for it” and that if the price can push through
USD 1,400oz, it will get to USD 1,700oz “rather quickly”.
Of course, it must be said that prices aren’t guaranteed to rise and after
a 5% rise over the past month, some consolidation would not be unexpected.
Nevertheless, we remain optimistic about the medium to long-term outlook for
gold. We believe it should be on the radar of most investors given its unique
qualities and the benefits it can bring to well diversified investment
portfolios.
Gundlach Quote
https://www.cnbc.com/2019/06/13/bond-king-jef...-long-gold.html
Tudor-Jones Quote
https://www.kitco.com/news/2019-06-12/Gold...-Bloomberg.html
target="_blank"
https://www.youtube.com/watch?v=iNjOptP7jJ4
Negative Yielding Debt
target="_blank"
https://www.ft.com/content/cf39a9a4-8ea...4d-b42f641eca37
Stephen Innes
target="_blank"
https://www.fxstreet.com/analysis/go...ng-201906170714
Disclaimer
Past performance does not guarantee future results.
The information in this article and the links provided are for general
information only and should not be taken as constituting professional advice
from The Perth Mint. The Perth Mint is not a financial adviser. You should
consider seeking independent financial advice to check how the information in
this article relates to your unique circumstances. All data, including
prices, quotes, valuations and statistics included have been obtained from
sources The Perth Mint deems to be reliable, but we do not guarantee their
accuracy or completeness. The Perth Mint is not liable for any loss caused,
whether due to negligence or otherwise, arising from the use of, or reliance
on, the information provided directly or indirectly, by use of this article.
