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Gold Shines: Investors Unnerved by Increasing Market Uncertainty

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Volatility makes a comeback

Volatility (VXX) has made a comeback in the markets this year after a prolonged calm. October’s elevated volatility sent equity markets into a tailspin. US–China (FXI) trade tensions, slowing global economic growth, the Fed’s latest rate hike and policy outlook, and the government shutdown have been major sources of volatility for US markets lately.

Gold gains bids

Gold has been gaining bids over the last few months—and particularly in December—on increased volatility and a rout in the stock markets. In December (as of December 21) the S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite (QQQ) have lost 12.7%, 12.3%, and 12.9%, respectively. Investors’ growing concerns over rising rates while the growth shows signs of faltering have led them away from stocks and other risky assets in search of safe-haven assets.

Gold (GLD) has been the major beneficiary of these bids. It has risen ~3% in December while the VanEcK Vectors Gold Miners ETF (GDX) compounded that gain to a record 8.3% 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 28.2% and 25.1%, respectively.

Time to go gold

AT 10:40 AM ET, gold prices were up ~1.0% while all the major stock indices were trading in the red. In this changing market scenario, investors need to be more selective and consider companies’ long-term fundamentals. Also, as volatility increases and markets worry about prospects, gold (GLD)(NUGT) investments usually increase. Goldman Sachs is bullish on gold’s prospects as it expects the market fear of a US recession to increase.

As we highlighted in Jim Cramer Feels ‘Powerless,’ Tells Investors to Buy Into Gold, Cramer suggests investors buy gold since it seems to be in a bull market. We also saw in Could Market Risks Bring Investors Back to Gold in 2019? how the factors hurting gold prices could reverse in 2019, giving gold a nice tailwind.

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