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Gold’s impressive advance in Y 2019 may be set to move into the New Year.
As 2020 looms, BlackRock Inc., the world’s largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs Group Inc. and UBS Group AG see prices climbing to 1,600 oz, a mark last seen in Y 2013.
Bullion is heading for the biggest annual advance since Y 2010, outperforming the Commodity Spot Index, as a year dominated by trade war vicissitudes and Fed interest rate cuts propelled the traditional haven to the forefront. Still, with global equities remaining buoyant and the US labor market proving resilient, gold’s outlook is not clear cut due to uncertainty over what central banks will do in Y 2020.
“Economic growth and inflation remain moderate and central banks continue to lean toward accommodation,” said a portfolio manager at the $24-B BlackRock Global Allocation Fund. “In this environment, any shocks to equities are likely to come from concerns over growth and, or geopolitics. In both scenarios, gold is likely to prove an effective hedge.”
Spot gold, which last traded at about 1,461 oz is up 14% this year, on course for the third annual gain in the past 4 years, with the only backward step being 2018’s 1.6% fall. In September, the metal hit 1,557.11, the highest since Y 2013. While holdings in bullion-backed ETFs have eased, they remain near a record.
Geopolitical and economic risks are likely to feature in 2020 just as they did this year, which could support gold: a Phase 1 trade accord between the Top 2 economies may be close.
The US Presidential vote looms in November, and before that there is the possible impeachment of the incumbent.
President Trump has said many different things on the trade dispute.
“Who knows what the US President does next, he has surprised us many times,” said a commodity analyst at UBS Wealth Management. “We also have the Presidential elections, so expect more volatility, more noise in the market.”
While gold has been buoyed by the ongoing trade dispute, risk assets like US equities are also finding support from optimism about a breakthrough, thus begging the question which 1 will prevail and which 1 is due for a pullback.
Gold will “have certain periods of outperformance, when we go risk-off,” said the chief global market strategist at the $1.2-T asset manager. Yet, “when we look back at 2020, it will not be one of the strongest performing assets. Equities will perform better, real estate will perform better and industrial metals will perform better.”
But should there be economic weakness in Y 2020, stocks will decline and the Fed will likely resume lowering rates, boosting non-interest yielding bullion, according to an analyst at the Gabelli Gold Fund.
The Fed has signaled a pause on easing after cutting rates from July to October by 3/4ths of a percentage point as growth deteriorated, business sentiment was hurt by uncertainties over trade, and inflation remained below target. Officials meet for the final time this year Wednesday.
While most see a prolonged pause from the Fed, there are dissenters. Another 2 cuts are expected in 1-H, according to BNP Paribas SA. The low-yield environment, along with the anticipated weakening of USD and likely reflation policies, will continue to support gold, the bank said.
Bullion buying by governments has emerged as an important pillar of demand, including purchases by China. Central banks are consuming 20% of global supply, signaling a shift away from USD and bolstering the case for owning gold, according to Goldman.
“I am going to like gold better than bonds because the bonds won’t reflect that de-dollarization,” the head of global commodities research at Goldman said Monday.
There are voices of caution, at least near term. Gold is seen averaging 1,400 in Q-1 even though the longer-term outlook looks solid, says an ABN Amro Bank NV strategist.
If risk assets continue to rally, investors should buy the gold dip, targeting fresh, cyclical highs by the end of Y 2020, Citigroup Inc. said.
“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman analysts said in a note. “We still see upside in gold as late-cycle concerns and heightened political uncertainty will likely support investment demand for bullion as a defensive asset.”