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Gold’s impressive advance in 2019 – aided by trade war frictions, easier monetary policy across the world’s leading economies and sustained central-bank buying – may be set to spill into the new decade.
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 an ounce – a level last seen in 2013.
Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg Commodity Spot Index, as a year dominated by trade war vicissitudes and a trio of Federal Reserve 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 isn’t clear cut due to uncertainty over what central banks will do in 2020. “Economic growth and inflation remain moderate and central banks continue to lean toward accommodation,” said Russ Koesterich, portfolio manager at the $24 billion 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.”
Annual advance
Spot gold – which last traded at about $1,463 an ounce – is up 14 per cent this year, on course for the third annual gain in the past four years, with the only backward step being 2018’s 1.6 per cent fall. In September, the metal hit $1,557.11, the highest since 2013. While holdings in bullion-backed exchange traded funds 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-one trade accord between the top two economies may be close, but the US has pledged to impose tariffs on more imports if a deal isn’t struck by December 15.
The US presidential vote looms in November, and before that there is the possible impeachment of the incumbent.
While gold has been buoyed by the ongoing trade war, risk assets like U.S. equities are also finding support from optimism about a breakthrough, begging the question which one will prevail and which one is due for a pullback. Invesco Ltd.’s Kristina Hooper, who sees prospects for a 5% to 8% gain in gold next year, thinks stocks will outshine bullion.
Gold will “have certain periods of outperformance, when we go risk-off,” said Hooper, chief global market strategist at the $1.2 trillion 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.”
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