As investors look to diversify their portfolios for the year ahead, they should consider incorporating gold and related gold ETFs to hedge risks and capture potential opportunities.
According to the World Gold Council’s latest Gold Outlook 2020, financial and geopolitical uncertainty combined with low interest rates gold strengthen gold investment demand. Meanwhile, central banks could exhibit robust demand for gold even if they are lower than the record highs seen in recent quarters. However, potential investors should be aware that momentum and speculative positioning may keep gold price volatility elevated. Over the near-term, gold price volatility and expectations of weaker economic growth may result in softer consumer demand, but structural economic reforms in India and China will support the long-term demand outlook.
“As we look ahead, we expect that the interplay between market risk and economic growth will drive gold demand in 2020,” according to the World Gold Council.
Gold recently registered its best performance since 2010, strengthening by 18.4% last year. The The SPDR Gold Shares (NYSEArca: GLD) also registered a 19.3% over the past year. Comex gold futures are now trading around $1,557 per ounce.
The precious metal has outperformed major global bond and emerging market stock benchmarks. Furthermore, gold prices hit record highs in most major currencies except the US dollar and Swiss franc.
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.
“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,” according to the World Gold Council.
For more information on the precious metals market, visit our precious metals category.