Global money managers see bullion’s bull run continuing in the new decade
Gold’s impressive advance in 2019 — spurred by trade war, easier monetary policy in leading economies, and sustained central-bank buying — may be set to spill into the new decade.
As 2020 looms, BlackRock, the world’s largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs and UBS see the gold price climbing to $1,600 an ounce, a level last seen in 2013.
Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg commodity spot index, as a year dominated by trade war and a trio of US Federal Reserve interest-rate cuts propelled the traditional haven to the forefront. Still, with global equities buoyant and the US labour market proving resilient, gold’s outlook isn’t clear-cut due to uncertainty over what central banks will do in 2020.
ANNUAL ADVANCE
“Economic growth and inflation remain moderate and central banks continue to lean towards accommodation,” said Russ Koesterich, portfolio manager at the $24bn BlackRock Global Allocation Fund.
“In this environment, any shocks to equities are likely to come from concerns over growth and/or geopolitics. In both scenarios, gold is likely to prove an effective hedge.”
Spot gold — which last traded at about $1,463 an ounce — is up 14% in 2019, on course for the third annual gain in the past four years, with the only backward step being 2018’s 1.6% fall. In September, the metal hit $1,557.11, the highest since 2013. While holdings in bullionbacked exchange-traded funds (ETFs) have eased, they remain near a record.
Geopolitical and economic risks are likely to feature in 2020 just as they did in 2019, which could support gold: a phase-one trade accord between the top two economies may be close, but the US has pledged to impose tariffs on more Chinese imports if a deal isn’t struck by December 15.
The US presidential vote is due in November, but before that the incumbent could be impeached. Donald Trump has said many things on the trade war, his stance shifting week to week, including recent remarks that he likes the idea of waiting until after the polls to sign a deal.
“Who knows what the US president does next, he has surprised us many times,” said UBS Wealth Management commodity analyst Giovanni Staunovo. “We also have presidential elections, so expect more volatility, more noise in the market.”
While gold has been buoyed by the trade war, risk assets such as US equities are also finding support from optimism about a breakthrough, posing the questions: which will prevail and which is due for a pullback. Invesco’s Kristina Hooper, who sees prospects for a 5%-8% gain in gold in 2020, thinks stocks will outshine bullion.
PROLONGED PAUSE
Gold would have “periods of outperformance, when we go risk-off”, said Hooper, chief global market strategist at the $1.2-trillion asset manager. Yet, “when we look back at 2020, it will not be one of the strongest performing assets. Equities will perform better, real estate will perform better and industrial metals will perform better”.
But with economic weakness in 2020, stocks will fall and the US Fed will probably resume lowering rates, boosting noninterest yielding bullion, according to Chris Mancini, an analyst at the Gabelli Gold Fund.
The US Fed has signalled a pause on easing after cutting rates from July to October by three-quarters of a percentage point as growth deteriorated, business sentiment was hit by trade uncertainty and inflation stayed below target.
Fed officials meet for a final time in 2019 on Wednesday.
While most see a prolonged pause from the Fed, there are dissenters. Another two cuts are expected in the first half, according to BNP Paribas. The bank said this month that the lowyield environment, expected weakening of the dollar and likely reflation policies will continue to support gold.
Bullion-buying by governments has emerged as an important pillar of demand, including purchases by China. Central banks are consuming a fifth of global supply, signalling a shift away from the dollar and bolstering the case for owning gold, according to Goldman.
“I am going to like gold better than bonds because the bonds won’t reflect that dedollarisation,” Jeff Currie, the head of global commodities research at Goldman, told Bloomberg Television on Monday.
There are voices of caution, at least in the near term. Gold is seen averaging $1,400 in the first quarter, even though the longerterm outlook looks solid, says ABN Amro Bank strategist Georgette Boele. If risk assets keep rallying investors should buy the gold dip, targeting fresh, cyclical highs by the end of 2020, Citigroup said.
“Gold cannot fully replace government bonds in a portfolio, but the case to re-allocate a portion of normal bond exposure to gold is as strong as ever,” Goldman analysts, including Mikhail Sprogis, said in a note.
“We still see upside in gold as late-cycle concerns and heightened political uncertainty will likely support investment demand” for bullion as a defensive asset.
$1,600 the price to which UBS and Goldman Sachs expect gold to rise in 2020
5%-8% the potential gold-price rise Invesco sees, while saying stocks will outshine bullion