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Gold Has Outperformed Other Asset Classes

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Dec. 4 2020, Updated 10:53 a.m. ET

Why Gold’s Resilience Continues in July

Following the June 23 Brexit vote when the UK chose to withdraw from the European Union, bond yields fell to record lows and gold rallied to two-year highs, reaching $1,375 per ounce on July 6. In the US, subsequent strong economic results in manufacturing, retail sales, and housing created US dollar strength and gold consolidated its Brexit gains, declining to $1,310 per ounce on July 21. However, as was the case throughout the post-crisis expansion, good economic news doesn’t last long and the month ended with disappointing durable goods and pending home sales reports, along with second quarter GDP growth of just 1.2%. The US dollar reversed course and the gold market demonstrated its resilience, advancing to end the month with a $28.80 per ounce (2.2%) gain to finish at $1,351 per ounce. Silver is fulfilling its role as a leveraged proxy for gold with a new post-Brexit high of $21.14 per ounce and a monthly gain of 8.7%. The buying in silver was led by China with heavy volumes on both the Shanghai futures and gold exchanges.

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However, as was the case throughout the post-crisis expansion, good economic news doesn’t last long and the month ended with disappointing durable goods and pending home sales reports, along with second quarter GDP growth of just 1.2%. The US dollar reversed course and the gold market demonstrated its resilience, advancing to end the month with a $28.80 per ounce (2.2%) gain to finish at $1,351 per ounce. Silver is fulfilling its role as a leveraged proxy for gold with a new post-Brexit high of $21.14 per ounce and a monthly gain of 8.7%. The buying in silver was led by China with heavy volumes on both the Shanghai futures and gold exchanges.

Market Realist: Gold has outperformed other major asset classes

With the rise in volatility, lower returns from the stock market, and negative or low bond yields, investors looking for safe-haven investments took shelter in gold (IAU) this year. Gold has outperformed all major asset classes this year, with a YTD (year-to-date) gain of 28%.

By contrast, the S&P 500 returned 6.8% during the same period. The sharp rally in gold (GDX) has caught many investors by surprise. Even gold bonds, as represented by Markit iBoxx USD Gold Mining index have returned 33.4% YTD.

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With economic growth remaining subdued and inflation rates very low, central banks in many developed countries have adopted numerous stimulus measures and negative interest rate policies to boost the economy. These policies appear to have negatively impacted government bond yields in many economies. Bond yields in the US (AGG) and many developed countries have declined drastically in the past year, making them an unattractive proposition. However, the same economic conditions boosted gold (GDXJ), which recorded a yearly high in August.

Silver surged this year

Silver (SLV), which is mainly an industrial commodity, has also been buoyant in 2016, with a YTD gain of 45%. In recent times, silver has become increasingly useful in solar panels, thus strengthening demand for the metal. In view of its low supply, silver could extend its gain during the remainder of the year.

In the next part, we’ll examine the latest trends in gold mining stocks.

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