Another good year for gold might continue into 2020
Gold’s impressive advance in 2019 — aided by trade war frictions, easier monetary policy across the world’s leading economies and sustained central bank buying — may be set to spill into the new decade.
As 2020 looms, BlackRock Inc., the world’s largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs and UBS Group see prices 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 changes in the trade war and a trio of Federal Reserve interest rate cuts propelled the traditional haven to the forefront.
Still, with global equities remaining buoyant and the U.S. labor market proving resilient, gold’s outlook isn’t clear cut because of uncertainty over what central banks will do in 2020.
“Economic growth and inflation remain moderate, and central banks continue to lean toward accommodation,” said Russ Koesterich, portfolio manager at the $24 billion BlackRock Global Allocation Fund.
Spot gold — which last traded at about $1,467 an ounce — is up 14 percent so far this year, on course for the third annual gain in the past four years, with the only backward step being 2018’s 1.6 percent fall. In September, the metal hit $1,557.11, the highest since 2013. While holdings in bullion-backed exchange traded funds have eased, they remain near a record.
Geopolitical and economic risks are likely to feature in 2020, just as they did this year, which could support gold.
While gold has been buoyed by the ongoing trade war, risk assets such as U.S. equities are also finding support from optimism about a trade war breakthrough, begging the question of which one will prevail and which one is due for a pullback. Invesco Ltd.’s Kristina Hooper, who sees prospects for a 5 percent to 8 percent gain in gold next year, thinks stocks will outshine bullion.
Gold will “have certain 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 should there be economic weakness in 2020, stocks will decline and the Fed will likely resume lowering rates, boosting noninterest-yielding bullion, according to Chris Mancini, an analyst at the Gabelli Gold Fund.
The Fed has signaled a pause on easing after cutting rates from July to October by three quarters of a percentage point as growth deteriorated, business sentiment was hurt by uncertainties over trade and inflation remained below target. Officials meet for the final time this year Wednesday.
While most see a prolonged pause from the Fed, there are dissenters. Two more cuts are expected in the first half of next year, according to BNP Paribas. The low-yield environment, along with the anticipated weakening of the dollar and likely reflation policies, will continue to support gold, the bank said this month.
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, signaling a shift away from the dollar and bolstering the case for owning gold, according to Goldman Sachs.
There are voices of caution, at least 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 continue to rally, investors should buy the gold dip, targeting fresh, cyclical highs by the end of 2020, Citigroup Inc. said.
“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 Mikhail Sprogis said in a note.