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Could Market Risks Restore Investors’ Focus on Gold and Miners?

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Uncertainty rising

As we’ve discussed in this series, market uncertainty is increasing. After a calm period in stock markets, downside risks have increased. Looming earnings deceleration, trade policy uncertainty, and the Fed’s tightening have been major factors weighing on investors’ minds.

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Gold’s safe-haven appeal dim this year

For most of this year, gold (GLD) has not been a safe-haven asset, as the US dollar (UUP) (USDU) has continued strengthening and the Fed’s rate hike outlook has remained strong. However, things are changing. Although the divergence in the United States’ (SPY) (VTI) and the rest of the world’s performance has strengthened the US dollar, many market participants now believe that emerging markets’ (EEM) weakness is about to end. Moreover, Europe and Japan could start tightening their monetary policies sometime in 2019. The Fed, on the other hand, could be nearing the last of its tightening by the end of 2019. Combined, these factors could lead to the United States’ and the rest of the world’s performance converging, which may not give the US dollar much incentive to rise.

Factors rekindling interest in gold

Even trade tensions haven’t been able to rekindle gold’s (GDX) appeal this year. However, next year could be different, as trade concerns may start impacting US businesses. These concerns could also fuel inflation concerns.

The US equity market has been mostly strong this year, and volatility has been minimal, preventing investors from looking for alternatives such as gold. As we’ve discussed in this series, earnings growth, margins, and economic growth could be peaking, which could limit future gains and be accompanied by increased volatility. All of these factors, plus gold and miners looking less expensive than broader markets, could prompt investors to keep a portion of their portfolio invested in gold (JNUG). For more on gold price drivers, read Could Gold Be the Best Bet amid Increased Economic Uncertainty?

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