Gold ETFs, such as the SPDR Gold Shares (NYSEArca: GLD) and the SPDR Gold MiniShares (NYSEArca: GLDM), were among last year’s best-performing commodities funds and some market observers are forecasting an extension of that theme this year.
Market participants turned to gold toward the end of 2019 as a potential hedge against economic and political uncertainty, especially after U.S. equities rallied toward record highs. The most recent rally may be attributed to rising tensions between Tehran and Washington after President Trump reiterated threats to strike Iran if things escalate between the two countries and as markets waited on the inevitable retaliation to the death of Major General Qassem Soleimani.
With the dollar expected to weaken this year, central banks flocking to bullion and low interest rates throughout the world, the 2020 setup for GLD, GLDM and other gold ETFs looks favorable. While gold was a stout performer last year, it didn’t reach new highs in dollar terms, potentially boding well for more upside in 2020.
“Gold had its best performance since 2010, rising by 18.4% in US dollar terms last year. It also outperformed major global bond and emerging market stock benchmarks in the same period,” said the World Gold Council (WGC) in a recent note. “In addition, gold prices reached record highs in most major currencies except the US dollar and Swiss franc.”
Giddy For Gold
Looking ahead, the World Gold Council argued that the precious metal could shine after the major monetary policy shift out of the Federal Reserve last year. Gold has historically performed in the 12 to 24 month period following policy shifts from tightening to “on-hold” or “easing”. Additionally, when real rates have been negative, gold’s average monthly returns have been double their long-term average.
Of course, interest rate policy will play a role in gold’s performance this year.
“Gold has historically performed well in the 12 to 24 month period following policy shifts from tightening to ‘on-hold’ or ‘easing’ – the environment in which we currently find ourselves,” said the WGC. “And, historically, when real rates have been negative, gold’s average monthly returns have been twice as high as the long-term average. Even slightly positive real interest rates may not push gold prices down. Effectively, our analysis shows that it has only been in periods with significantly higher real interest rates – an unlikely outcome given the current market conditions – that gold returns have been negative.”
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.