Could Gold Be the Best Bet amid Uncertainty?


Jun. 20 2019, Updated 4:07 p.m. ET

Investors look for safe bets

The overall investor sentiment has been bearish given the US-China trade tensions and deteriorating economic reports. In addition to bonds (BND), investors are also looking to gold due to its safe-haven appeal. Not only this, there are many other factors that are currently going in gold’s favor.

Since Donald Trump’s tweet on May 5 revived trade tensions, the SPDR Gold Shares ETF (GLD) and the VanEck Vectors Gold Miners ETF (GDX) have gained 6.0% and 18.3%, respectively, and the S&P 500 (SPY) and the NASDAQ Composite (QQQ) have fallen 0.3% and 2.1%, respectively.

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Macro drivers aligning for gold

Some of the Fed members were in favor of a rate cut in 2019 according to the policy meeting concluded on June 19. With rate cuts in focus, almost all macro drivers are favoring higher gold prices. As gold doesn’t yield regular income, lower interest rates increase its appeal. The stronger US dollar (UUP) has also been behind gold’s woes despite increasing geopolitical tensions. However, even the dollar has started weakening, as expectations from the Fed have reduced its appeal over other currencies. Since gold is dollar-denominated, gold and the dollar are inversely related, and the dollar’s fall is boosting gold.

Billionaire investors recommending gold

The list of billionaire investors advocating for gold investments is also rising. Paul Tudor Jones’ strategy to play the rate cuts involves long rates and gold. Read Paul Tudor Jones’s Strategy for Fed Rate Cuts for more on his take. On June 13, Jeffrey Gundlach said, “I am certainly long gold.” His call on gold is based on his expectation that the US dollar (UUP) will finish lower this year. In Druckenmiller Suggests These Two Trades to Hedge against Meltdown, we wrote that Stanley Druckenmiller had dumped his other investments and piled into Treasuries (TLT) after President Donald Trump’s tweet on May 5. He also likes gold (GLD) in this environment.


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