After spending the first six months of 2019 below the coveted US$1,400 an ounce mark, gold spent the last half of the year breaking its range bound levels and hitting a five-year high.
The positive performance by the yellow metal during two quarters of 2019 is attributed to persisting tensions around a trade deal between Beijing and Washington — heated negotiations that have drawn on for more than 18 months.
As the year comes to an end, the Investing News Network (INN) is looking back at the main gold trends of 2019, from the impact of US Federal Reserve interest rate cuts to widespread geopolitical uncertainty and the steady increase in global debt.
Is gold a good hedge investment?
Get an in depth market report for free!
Give me my free report!Some of the gains gold made as a result of the trade dispute were offset when the Federal Reserve cut interest rates three times in the last half of the year.
Despite starting 2019 at its lowest point year-to-date, US$1,283.20, the value of gold has climbed 15 percent to sit at US$1,476.90 on December 3.
Gold trends Q1: Weak US dollar drives gold higher
With the US dollar slipping to its lowest point all year on January 9, when the US dollar index was at 95.14, investors began looking to gold bullion for its safe haven status, which led to the precious metal starting its 12 month ascent.
“The US dollar, we think, is going to start its long-term downtrend,” Chantelle Schieven, research head at Murenbeeld & Co., told INN in an interview at the Prospectors & Developers Association of Canada (PDAC) convention.
By January 31, gold reached a nine month high to trade for US$1,320.70 as the greenback fell lower.
Tariff and trade issues persisting between China and the US, as well as the geopolitical unrest brought on by Brexit and issues stemming from the Middle East in terms of nuclear pacts and oil trade routes all benefited gold during the first three months of the year.
The valuable metal was able to break out of the US$1,200 range at the end of January and remained there until early March.
Gold trends Q2: Weakening economy propels sector
The second quarter of the year started with gold sitting at US$1,291; by the end of June, the metal had climbed 7 percent to US$1,408 an ounce.
“For Q2, geopolitical events, namely the US-Iran conflict, pushed gold past the US$1,400 price level to a six-year high. This, coupled with slower economic growth (i.e. weak jobs report for May), led to easier monetary policy expectations, which will help support gold around US$1,400,” Schieven told INN.
Geopolitical tensions were heightened towards the end of Q2, when President Trump brought his tough tariff talk to dealings with Iran and Mexico.
Concern that China’s economy was slowing helped push the yellow metal over the US$1,350 mark in mid-June when data indicated China’s industrial output had fallen to a 17 year low of 5 percent.
Is gold a good hedge investment?
Get an in depth market report for free!
Give me my free report!As fears over macroeconomics continued to heighten, June marked the beginning of gold’s steady climb to US$1,500.
“Gold prices continued to rise through June on higher safe haven demand, amid disappointing global macroeconomic data and heightened trade tensions between the US and China,” noted a June report from FocusEconomics.
The global landscape was a major topic of the Federal Reserve’s June meeting when the central bank decided to cut interest rates and foreshadowed a potential rate cut in Q3.
Gold trends Q3: 2 Fed cuts, gold moves higher
The first 60 days of Q3 were positive for gold, which spent the period climbing from US$1,384 at the beginning of July, to US$1,517 on August 30, 2019.
Renewed interest in the safe haven status of the metal helped move the price 2 percent higher for the month.
Mid-month, the price hit US$1,445.50 — a five-year high and precursor to the sustained growth the metal would experience for the remainder of the year.
“Everything revolves around gold right now. The key trend is for gold to convince the investing community that the recent six year high, breaking out from overhead resistance, is the beginning of a major move to the upside,” Jonathan Butler, an analyst for Mitsubishi (OTC Pink:MSBHF,TSE:8058), said at the time.
August saw the Fed cut interest rates by a quarter point for the first time since 2008; however, it wouldn’t be the only rate cut for the year.
Immediately following the lowering, the US dollar rallied and gold went down temporarily. The metal was able to recover the losses quickly and again began ascending, climbing US$59 dollars between August 1 (US$1,448) and August 9 (US$1,507).
In its statement, the Fed remained vague on whether another cut would be in the future.
Ready to profit from precious metals this year?
Read your free report today for stocks, market data and more...
Give me my free report!“If global conditions, i.e. global trade, worsen, and economic data is weaker, then the Fed could cut again by year end,” Schieven told INN at the time. “But if economic data is about the same or better, the Fed is likely to hold for now. The uncertainty surrounding the next move … will likely create additional volatility around each major US data release, and the upcoming Fed statements, until a more solid direction is projected by the Fed.”
As the precious metal continued its 2019 uptick, analysts and market watchers began speculating on the heights the price could reach.
Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX,NYSE:MUX), said he sees gold eventually hitting US$5,000, with the potential to go higher.
John Kaiser of Kaiser Research believes that as gold trends higher, investor interest should peak when the prices go north of US$1,900.
“I think we are in the early stages of seeing a massive repricing of gold into the US$2,000 to US$3,000 per ounce range,” he told INN in August. “The public won’t come in until they see gold really challenge the US$2,000 mark.”
In early September, gold hit its highest point of the year at US$1,553, as central banks around the world increased the amount of the yellow metal they were keeping on hand.
Gold trends Q4: Will the Fed cut rates again?
“I actually think US$3,000 to US$5,000 is very reasonable,” explained the Outsider Club’s Gerardo Del Real at this year’s New Orleans Investment Conference in early November.
“If you look at it, we’re at US$1,500 right now, so US$3,000 is a 100 percent move … a 100 percent move in gold isn’t by any stretch of the world (an) incredible performance if we’re talking the next five to seven years.”
However, due to its status as a safe haven, rainy day investment nature, some of the events that need to occur to drive gold above US$2,500 an ounce would be detrimental to the rest of the market and countries around the world.
“I think it’s going to get more volatile, unfortunately,” he continued. “There’s a real human toll to that. So yes, we can be excited about US$3,000 to US$5,000 gold, but, you know, understand that it’s going to come with a lot of volatility.”
For context, gold’s all time high was US$1,920.30 — a price reached in September 2011.
Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence and author of “Fed Up,” a critical look at the Federal Reserve, also spoke at the New Orleans conference about some of the factors that were leading to a potential global economic crisis.
According to DiMartino Booth, economic trends to watch include over indebtedness as the global debt surpasses US$250 trillion, a decline in business investment and ill-rated bonds paraded as investment grade.
Is gold a good hedge investment?
Get an in depth market report for free!
Give me my free report!All the uncertainty, according to the former Federal Reserve Bank of Dallas employee, will add to gold’s allure as an economic refuge.
“(T)here is still much more uncertainty about liquidity, about the debt markets, about why the Fed has got the printing press up and running 24/7, and the more of that you have building in the background, the more investors are going to feel the need to hedge their portfolios to protect for that unknown,” she said. “The most logical place to do that is where they can get the truest diversification, and that is going to be in your precious metals-gold complex.”
The price of gold began slipping at the beginning of November following the third Federal Reserve interest rate cut in four months. This was likely the result of the strong US dollar, which had countered gold’s slip with gains of its own.
Despite losing some of the progress made in September, the yellow metal is still up 15 percent year-to-date as of December 4, 2019.
Brian Leni of the Junior Stock Review foresees gold’s strength lasting into 2020 due to increasing political unrest in Hong Kong and the locales listed above, the looming US election and growing personal debt.
“Given this, I see a higher probability that we will see sustained gold prices above US$1,500 per ounce in 2020, with the chance of breaking the historical high of over US$1,900, if the worst scenario plays out,” he said.
At the Fed’s last meeting for the year (December 11) the central bank decided to hold interest rates at 1.5-1.75 percent and signaled it would keep rates paused into 2020. Despite removing references to ‘uncertainty’ from its outlook, chairman Jerome Powell said he was worried about low inflation rates. Powell also noted the Fed will continue to stimulate the US economy until the inflation rate exceeds 2 percent, it is currently 1.6 percent.
The news rocketed gold higher, from US$1,463 Wednesday morning, to US$1,484 when markets opened on Thursday (December 12).
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.