Here is the performance of gold and other major assets classes in Q1.
Gold is typically inversely correlated to the equity markets; that it ended the quarter up in the face of higher stock markets is viewed as a sign of strength.
Potential Catalysts and Barriers
A number of potential factors could impact the gold price in the near term.
Equity Performance: Gold would be attractive if stocks weaken. The beginning stages of a bear market would further push an increasing number of investors into the gold market. Continued strength in equities would likely leave gold flat.
Market Volatility: Investors looking for stability would likely turn to gold on any spike in the VIX. Markets have arguably been less predictable of late.
Interest Rates: Our 2018 year-end report speculated that long-term bonds signaled the Fed was likely done raising short-term rates – and sure enough they paused. A rate reversal would serve as a strong catalyst for gold, since the cost of holding it would diminish.
Central Bank Buying: We also reported that central banks could continue to stock up on gold. Turns out they bought more gold in Q4 than since Nixon was president. Central bank gold purchases have remained a steady source of demand.
Brexit Struggles: Headlines continue to report on the conflicts with the UK leaving the EU. The British government arguably remains in crisis, as the departure date looms without a plan in place. The process and solutions remain messy, and gold would likely hedge a negative market reaction to any no-confidence vote.
Recession Watch: The yield curve teases going flat, and an inversion would serve as a potential signal of a recession. Gold is typically sought as a safe haven during periods of negative economic growth, and is flat or weak in when the economy is growing.
US Dollar: The dollar shows signs of wanting to roll over, and any weakness would be positive for the gold price. Strength would leave gold flat. The US dollar and gold tend to react inversely.
Geopolitical: Trade talks continue to make headlines, and the Trump White House remains unpredictable. Markets react fondly to President Trump’s certainties like tax cuts, and unfavorable to his surprises.
Debt event: While the Treasury has enough cash on hand to operate the government until sometime in the fall, debt issues garner increasing attention in the headlines, both domestic and abroad. Any unexpected surprises here could ignite gold.
A number of potential factors could impact the gold price in the near term.
Equity Performance: Gold would be attractive if stocks weaken. The beginning stages of a bear market would further push an increasing number of investors into the gold market. Continued strength in equities would likely leave gold flat.
Market Volatility: Investors looking for stability would likely turn to gold on any spike in the VIX. Markets have arguably been less predictable of late.
Interest Rates: Our 2018 year-end report speculated that long-term bonds signaled the Fed was likely done raising short-term rates – and sure enough they paused. A rate reversal would serve as a strong catalyst for gold, since the cost of holding it would diminish.
Central Bank Buying: We also reported that central banks could continue to stock up on gold. Turns out they bought more gold in Q4 than since Nixon was president. Central bank gold purchases have remained a steady source of demand.
Brexit Struggles: Headlines continue to report on the conflicts with the UK leaving the EU. The British government arguably remains in crisis, as the departure date looms without a plan in place. The process and solutions remain messy, and gold would likely hedge a negative market reaction to any no-confidence vote.
Recession Watch: The yield curve teases going flat, and an inversion would serve as a potential signal of a recession. Gold is typically sought as a safe haven during periods of negative economic growth, and is flat or weak in when the economy is growing.
US Dollar: The dollar shows signs of wanting to roll over, and any weakness would be positive for the gold price. Strength would leave gold flat. The US dollar and gold tend to react inversely.
Geopolitical: Trade talks continue to make headlines, and the Trump White House remains unpredictable. Markets react fondly to President Trump’s certainties like tax cuts, and unfavorable to his surprises.
Debt event: While the Treasury has enough cash on hand to operate the government until sometime in the fall, debt issues garner increasing attention in the headlines, both domestic and abroad. Any unexpected surprises here could ignite gold.
The Hard Asset Hedge
Gold is about more than quarterly fluctuations, though. Gold…
Has outperformed stocks over the last 20 years
Can hedge against systemic risk, stock market pullbacks, and inflation
Is a store of wealth
Improves the risk-adjusted returns of portfolios, while reducing losses
Can provide liquidity to meet liabilities in times of market stress
An appropriate balance of gold in a portfolio can serve as a useful hedge, particularly as we face ongoing risks in markets, interest rates, geopolitics, debt, and currencies.
Gold is about more than quarterly fluctuations, though. Gold…
Has outperformed stocks over the last 20 years
Can hedge against systemic risk, stock market pullbacks, and inflation
Is a store of wealth
Improves the risk-adjusted returns of portfolios, while reducing losses
Can provide liquidity to meet liabilities in times of market stress
An appropriate balance of gold in a portfolio can serve as a useful hedge, particularly as we face ongoing risks in markets, interest rates, geopolitics, debt, and currencies.
- Source, Jeff Clark
