Gold futures breached the $1,500 per ounce level on Tuesday after sluggish trading sessions for the last few weeks. Spot gold prices also reached close to the $1,500 per ounce level on Wednesday. So far, gold has risen almost 17% this year—the best year since 2010. Investors generally switch to safe-haven investments like gold amid broader market uncertainties.
Gold could be the focus amid geopolitical tensions
Although China and the US look well placed based on phase one of the trade deal, the deal hasn’t been signed yet. Investors might be looking for more clarity about a partial trade truce. Notably, the US and China needed several rounds of negotiations to reach a partial trade deal. They will need more phases to reach a concrete resolution to end the US-China trade war. Broad market indices rallied due to favorable developments related to the interim trade deal. However, considering all of the uncertainties involved, investors might turn to defensive investments amid market volatility. The trade truce between the US and China will likely be a trigger for gold prices going into 2020.
Apart from the trade war, lower interest rates could also push investors towards gold. Globally, interest rates have been lower, which will continue to support gold. Also, geopolitical tensions like Brexit might fuel uncertainty amid global equity markets.
Gold prices in 2020
Some market veterans also look positive on gold for the next year. According to CNBC, Byron Wien, the vice chairman of private wealth solutions, stated that gold might be an interesting investment in 2020. Goldman Sachs expects gold to rise to $1,600 per ounce by March.
Gold and equities
Equities and gold usually have a low correlation. As a result, gold (GLD) acts as an effective hedge when stock markets are turbulent. In the last ten years, the S&P 500 (SPY) and gold had a correlation coefficient of 0.07. A correlation coefficient of 1 represents a strong positive correlation while -1 indicates a strong negative correlation.
Recently, investors seemed to be turning positive on equities. According to the Bank of America Global Research Fund Managers survey last week, professional investors are shifting their focus to equities from bonds. Many investors think that a recession isn’t likely next year. Notably, the change in the market sentiment came at a critical time when equity indexes are trading at all-time highs. The Dow Jones Index (DIA) and the S&P 500 Index have risen almost 25% and 31%, respectively, YTD (year-to-date).
Gold miner stocks also had a strong run this year. Barrick Gold is the world’s second-biggest gold miner. The stock has risen almost 30% YTD. Meanwhile, Newmont Goldcorp (NEM) has risen 24% YTD. Higher realized gold prices had a positive impact on these companies in 2019. The positive outlook on gold could increase their earnings next year.