The SPDR Gold Shares (NYSEArca: GLD), the largest gold ETF, and other gold-backed ETFs are trading lower this quarter, but some major Wall Street banks see more gains coming for bullion in 2020.
That includes Goldman Sachs, which believes “fear-driven demand” will boost bullion in the year ahead.
“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman analysts including Sabine Schels said in a recent note, reports Bloomberg. “We still see upside in gold as late-cycle concerns and heightened political uncertainty will likely support investment demand.”
In fact, some commodities market observers believe the yellow metal can continue delivering solid showings in 2020. Even with Friday’s retreat, GLD remains higher by nearly 15% year-to-date as bullion has been one of 2019’s best-performing commodities.
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Gold ETFs previously rallied amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive so that the money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
“The precious metal climbed to a six-year high in September as the Federal Reserve cut borrowing costs and the total pile of debt yielding less than zero climbed to a record $17 trillion, boosting the appeal of non-interest bearing gold,” according to Bloomberg,
Data suggest professional traders are bullish on gold, too.
“Hedge funds and other large speculators boosted their bullish bets on the precious metal by 8.9% in the week ended Dec. 3, government data showed Friday. That’s the biggest gain since late September,” reports Bloomberg.
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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.