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Strong Case for Gold over Bonds and Stocks? Bernstein Thinks So


Feb. 12 2019, Updated 9:08 a.m. ET

Gold’s gains

Gold’s price (GLD) saw its fourth consecutive positive monthly return in January. It rose ~3% in the month after its rise of 4.9% in December. The major driver of gold’s price during the month was the dovish stance taken by the Federal Reserve.

Gold, however, underperformed broader equity markets in January. The S&P 500 Index (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite Index (QQQ) rose 8.0%, 7.3%, and 9.0%, respectively, in the same period.

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Market concerns

While markets have rallied so far in 2019, market concerns are far from over. US-China trade war concerns still linger, and the potential earnings slowdown is also affecting investors’ sentiments. Many market participants are also talking about the possibility of a recession in 2019 or 2020 and ways to navigate through these times.

Bernstein: A strong case for holding gold

As reported by CNBC, Bernstein is suggesting investors look at gold (GLD) and gold miners (GDX) as recession fears rise. The company believes that we are heading toward a period where neither stocks nor bonds (BND) will perform well. Bernstein looked at four market downturns and came to the conclusion that gold “is the most defensive” commodity. It also concluded that during those scenarios, gold equities (NUGT) (JNUG) closely tracked gold and “at least manage[d] to achieve a positive benchmark-relative return.”

The company is tracking two key measures, global government debt and the central bank’s buying of gold, which are at levels not seen since World War II. These factors, in Bernstein’s view, enhance the case for holding gold (IAU). You can also read Bulls versus Bears on Wall Street: Time to Buy Gold in 2019? for analysts’ outlook on gold prices in 2019.

We discussed in Central Banks Purchased the Most Gold in 50 Years in 2018 why there’s a high likelihood that this trend will continue and could accelerate further in 2019.

US stocks’ earnings and margin deceleration remain concerns. Moreover, as volatility is rising and earnings and margin prospects are weakening, future gains for equities could be limited, which should be a positive catalyst for gold.

Read Gold’s Long-Term Outlook Is Upbeat despite Short-Term Headwinds for more on gold’s price drivers and their outlooks.

Gold miners (GOLD) are scheduled to release their fourth-quarter earnings results starting tomorrow. Read Digging into Gold Miners’ Performances ahead of Their Q4 Results for a preview.


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