In 2018, U.S. stocks logged their worst year since 2008—and their worst December since 1931—as fears over global trade, ballooning debt, the end of accommodative central bank policy and a U.S. government shutdown unsettled investors. Against this backdrop, the price of gold rallied late in the year, reversing a trend of negative returns and weak investor demand that prevailed for most of the year.
The yellow metal, after all, has historically had a strong negative correlation with the market. This inverse relationship held firm in 2018, as gold rallied when stocks began to fall. As seen in the charts below, gold beat the S&P 500 Index for the month of December, the fourth quarter and the year.
With stocks down, gold’s outperformance shouldn’t come as such a shock. What might be surprising is that the precious metal has also beaten the market for the century, 345.39 percent versus 70.62 percent, since December 31, 1999.
This could mean that even though gold is still down from its 2011 peak, investors continue to view it as a store of value.
Strong Gold Investment on Heightened Stock Volatility
Indeed, gold bulls added substantial positions to ETFs backed by bullion in December as the metal headed for its biggest monthly advance in two years. Gold-backed ETF holdings surged by more than 100 tons between October and December 2018, helping to boost prices even further.
Quincy Krosby, chief market strategist at Prudential Financial, explains why this buying is no fluke. Speaking to Bloomberg, she said that “the market is questioning whether the [Federal Reserve] is making a policy mistake, and that could not only lead to slower growth, but perhaps to a recession.” Krosby went on to say that when you see this heavy selling in equities, “it’s indicative of fear.”
Gold Miners Ended 2018 on a High Note
It wasn’t just bullion that had a good fourth quarter. Precious metal miners, as measured by the FTSE Gold Mines Index, gained a remarkable 15.85 percent in the three months ended December 31. Among the leaders in 2018 were Nevsun Resources, up 106 percent for the 12-month period; Kirkland Lake Gold, up 81 percent; SSR Mining, up 45 percent; and North American Palladium, up 38 percent.
So should you consider exposure to the gold market?
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.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
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. The FTSE Gold Mines Index encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.
Correlation is a statistic that measures the degree to which two securities move in relation to each other.
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.