28 Dec

Bulls versus Bears on Wall Street: Time to Buy Gold in 2019?

WRITTEN BY Anuradha Garg

Gold at a six-month high

For a large part of the year, gold prices (GLD) have languished due to a strong US dollar (UUP), hawkish Fed rate hike outlook, and rising equity markets. For the last few months, though, some of these factors seem to be reversing their course. Equity markets, for one, have remained quite fragile and volatile (VIX) since October. As of December 24, the S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite (QQQ) have lost 18.9%, 16.1%, and 21.6%, respectively, since hitting their highs in mid-September.

Bulls versus Bears on Wall Street: Time to Buy Gold in 2019?

Gold prices, on the other hand, have gained 6.0% while the VanEcK Vectors Gold Miners ETF (GDX) compounded that gain to a record 20.0% surge. The price action in leveraged gold ETFs, such as the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) and Direxion Daily Gold Miners Bull 3X ETF (NUGT), has been more dramatic with gains of 30.7% and 57.9%, respectively.

The sell-off in equities intensified after the Fed’s 25 basis point rate hike and more-hawkish-than-expected tone, which unnerved investors and gold started gaining increased bids.

Increasing market concerns

The recent market sell-off reflects increasing market concerns. Some of these market concerns are conducive to gold’s safe-haven appeal. The major sources of uncertainty are expected to be the looming trade war between the United States and China (FXI), the coming earnings and margins deceleration, the Brexit deal, and the Fed’s policy path. The factors that weighed negatively on gold prices (GLD) in 2018 aren’t expected to remain bearish for gold in 2019.

You can also read Could Market Risks Bring Investors Back to Gold in 2019? for more on these factors and their outlook.

Series preview

In this series, we’ll discuss what the major Wall Street analysts have to say about the outlook for gold and other precious metals’ outlook for 2019. We’ll also see what arguments they forward to support their views. We’ll start by looking at Credit Suisse’s take on gold prices in 2019, in the next part of this series.

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