January 6th 2020 update: They told us gold price would stagnate or go down as stocks soared, however, this has not been the case. In just the last few days, geo political tensions have skyrocketed amid serious concerns over a potential conflict in Iraq and Iran. The assassination of General Soleimani (former head of the Iranian Revolutionary Guards) even if well deserved, brought back memories of the disastrous invasion of Iraq in 2013. Investors have flooded into safe haven assets such as gold and even cryptocurrency. Oil prices have also soared amid concerns over disruption to supplies.
Gold price soars as tension with Iran heats up
The price of gold is currently at its highest levels since 2013 of 1,588 an ounce, before settling at 1567.7 for a spot ounce at the time of this writing. What will come next? No one is sure, although analysts are now turning with favor to the precious metal as prices raise. Stay tuned for further updates and see below for some prior commentary on how gold price trading works.
Dec 17, 2019 – Update: Gold could face some challenges in 2020 if inflation goes up. A higher inflation could encourage the Fed to raise interest rates. The US-China trade deal is still unpredictable, but a global economic stability could also hurt demand for safe haven precious metals such as gold. However, an analyst predicts that gold could jump to around $1,700 per ounce in the next 2-3 months.
Wolfe Research analysts John Roque and Rob Ginburg told investors that gold was “very overbought” in August-September, and it has corrected since then. Now it is set to make its next short-term move in January-February of 2020. The analysts predict the yellow metal could surge up to 15% in the next 75 days.
According to Wolfe Research, there have been seven “turns” in gold prices since 2015, and each time the metal has rallied around 15% over 75-80 days.
The US Federal Reserve decided to keep rates unchanged following its meeting this week. The central bank also signaled that it’s unlikely to change the rates in 2020 amid low inflation. It is looking to change the interest rates once in 2021 and then in 2022. The Federal Reserve expects moderate economic growth in 2020.
Following the Fed’s decision, spot gold inched up to $1,478 per ounce. The central bank chose not to cut interest rates again largely due to better than expected consumer prices. Analysts at OCBC Bank told Reuters that the global economy appears to have stabilized after more than a year of uncertainty.
Paul Schatz of Heritage Capital told Yahoo Finance that gold will continue to rise in the 2020s. It could go up to $2,500 or $3,000 per ounce from current levels. It’s not just gold ETFs and institutional investors driving up demand for gold. Wealthy individuals are also hoarding physical gold.
The US-China trade tensions, federal rate cuts, easier monetary policies all over the world, and massive gold buying by central banks – All these factors made sure that gold had an impressive performance in 2019. With only a few weeks left in 2019, most investors have an optimistic gold price outlook for the next year.
Spot gold price touched the all-time high of $1,921.17 per ounce in September 2011. It currently trades at around $1,477 per ounce, reflecting an impressive 15% jump this year so far. Gold is a safe haven for investments. It has proved an effective hedge in times of economic uncertainty. Will bullion outshine equity in 2020?
Gold price outlook: Mixed economic signals
The gold price outlook for 2020 is not that clear because there are mixed signals about the state of the US and global economy. The US job market remains resilient and global equities continue to perform well. The S&P 500 is up nearly 25% this year. JPMorgan analyst Dubravko Lakos-Bujas expects the S&P 500 to rise 8% in 2020.
Over the last few months, there has been a lot of noise about the inverted yield curve in the US. Historically, the yield curve inversion has been a sign of an impending slowdown. But private consumption remains robust in the US, showing the resilience of the world’s largest economy.
Leading European and Asian nations are planning to unleash fresh fiscal stimulus to counter the slowdown in trade, manufacturing, and consumption. The potential fiscal stimulus should help boost economic growth in the year ahead.
Why it could go up
Despite the positive economic signs, there are still a number of reasons to believe that investors will be rushing to the safety of gold and other haven assets. The US-China trade war was the biggest reason behind gold’s rally in 2019, and it will likely remain the biggest driver.
Two of the world’s largest economies have agreed to a partial accord, and the phase-one of the trade deal could be imminent. But President Donald Trump has warned that if the trade deal is not signed by Dec.15, the US could impose tariffs on more Chinese imports, escalating the already complicated trade tensions.
The US Presidential elections will have a direct impact on the trade war, and indirect on gold. President Trump has signaled that he could wait until after the Presidential election to sign the trade deal with China. Given President Trump’s mood swings, I wouldn’t even attempt to forecast anything about the trade war.
Another reason is that the US Federal Reserve has maintained a dovish stance on rate cuts. A series of rate cuts this year have prompted investors to shift a portion of their assets to safe haven investments such as gold. Analysts at UBS Securities and Goldman Sachs expect gold prices to surge to $1,600 in 2020. They have also warned that the yellow metal could settle at around $1,400 by the end of next year.
If the global economy witnesses a slowdown in 2020 as several analysts and economists have predicted, the Fed would start lowering rates further, the equity markets would decline, and gold would become the safe haven investors would rush to.
Standard Chartered analyst Suki Cooper told Bloomberg that the gold rally in 2019 was largely driven by the US-China trade war and central banks purchasing massive amounts of bullion. But gold will get its next push from “retail investors as risks remain skewed to the upside.” Cooper expects gold to hover around $1,570 toward the end of 2020. A similar trend was seen in 2011 when retail demand drove gold to a record high of $1,921.17 per ounce.