Insights

The Gold Bulls Just Regained the Upper Hand

The Gold Bulls Just Regained the Upper Hand

Commodity traders appeared excited about gold again as stocks are on pace for their worst year since 2008, and their worst December since 1931. Bullish bets on the yellow metal outnumbered bearish ones for the week ended December 11, resulting in the first instance of net positive contracts since July, according to Commodity Futures Trading Commission (CFTC) data.

traders make bullish bet on gold since july as stocks tumble

December has historically been a strong month for stocks. But fears of a slowdown in global growth, rising interest rates and the U.S.-China trade war have prompted many investors to pare down their stocks in favor of gold, often perceived as a “safe haven” in times of economic and financial instability.

Now, heading into 2019, gold “is poised to take the bull-market baton from the dollar and stocks,” writes Bloomberg Commodity Strategist Mike McGlone. Although the U.S. dollar has been strengthening since September, which would ordinarily dent the price of gold, the yellow metal has shown “divergent strength on the back of increasing equity-market volatility,” McGlone adds.

Gold and Metal Miners Have Crushed the Market

So far this quarter, gold has outperformed the market, climbing 5.97 percent as of December 21, compared to negative 14.96 percent for the S&P 500 Index. Gold miners, though, as measured by the NYSE Arca Gold Miners Index, have been the top performer, climbing 12.29 percent.

gold miners have been the standout performer this quarter

We could potentially see higher gold and gold equity prices next year and beyond, but the dollar will likely need to come down. For that to happen, the Federal Reserve will need to call timeout on its quarterly rate hikes. Many industry leaders now support this idea, including Jeffrey Gundlach and Stanley Druckenmiller, not to mention President Donald Trump.

“I hope the people over at the Fed will read today’s Wall Street Journal (WSJ) Editorial before they make another mistake,” Trump warned in a tweet Tuesday morning. “Also, don’t let the market become any more illiquid than it already is. Stop with the 50 B’s. Feel the market, don’t just go by meaningless numbers. Good luck!”

The WSJ editorial Trump refers to makes the case that “economic and financial signals suggest [Fed Chairman Jerome Powell] should pause,” a line the president has been repeating for months now.

Looking ahead five years, the investment case for gold and gold miners appears to be more attractive. London-based precious metals consultancy firm Metals Focus projects a gradual increase in gold consumption between now and 2023, supported by strong jewelry demand and physical investment.

gold consumption forecast through 2023

“From late 2019 onwards,” Metals Focus analysts write, “we expect a bull market in gold to emerge, which in our view will remain in place for the next two to three years.”

Greenspan Urges Investors to “Run for Cover”

In an interview this week with CNN, former Federal Reserve Chairman (and gold fan) Alan Greenspan urged investors to “run for cover,” as he doesn’t see the market moving much higher than they are now.

“It would be very surprising to see it sort of stabilize here, and then take off,” Greenspan said.

We believe the best way to “run for cover” is with gold and short-term, tax-free municipal bonds. We advocate the Golden Rule, which suggests a 10 percent portfolio allocation to gold, with 5 percent in bullion, coins and jewelry, the other 5 percent in high-quality gold stocks, mutual funds and ETFs.

An attractive way to invest in the gold space, we think, is with our U.S. Global GO GOLD and Precious Metal Miners ETF (GOAU), which provides investors access to companies engaged in the production of precious metals either through active or massive means. GOAU seeks high-quality, well-managed producers that have a proven track record of sustainable profitability – even when precious metals prices are down.

LEARN MORE ABOUT GOAU!
 

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The S&P 500 Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The index benchmark value was 500.0 at the close of trading on December 20, 2002.

Past performance is not a guarantee of future results. Index performance is not illustrative of fund performance. One cannot invest directly in an index. Please click here to view fund performance.