Keep an eye on gold in 2020 - January 22, 2020

Keep an eye on gold in 2020

Gold went up almost 20% last year, and we expect it to go even higher in 2020. Interestingly, this skyrocketing happened during a period when stocks broke records as well. How come? Although stock markets are performing strongly, there are financial uncertainties that can help the always trustworthy gold. This won’t change this year either.

In 2019 gold outperformed several other instruments, crawling higher and higher throughout the year. Gold for example topped most bonds and emerging markets, although it was beaten by the biggest stock index, S&P 500, and oil. Still, this is an extraordinary performance, backed by several global events.

What are the reasons behind gold’s rise?

World Gold Council’s “Gold Outlook 2020” found that the precious metal gained the most during June and September. Why are those dates important? Because during these times “uncertainty increased and interest rates fell”. These things had a great influence on the metal’s price, since gold is historically a haven for investors, which they turn to when volatility rises.

Low interest rates are also helping gold’s price. Historically speaking, gold is keeping its value on the long run, therefore it’s a better choice than cash. With super low interest rates, money only loses its value when it’s kept on bank accounts. (See: Did the floodgate to negative interest rates brake? and How do low rates hurt everyday people?) People tend to turn to investments with better returns when this happens, and gold is a relatively low-risk choice.

What can we expect for 2020?

Interestingly, we expect both gold and stock markets to perform well in 2020. Analysts are optimistic about stocks (see: Will S&P 500 hit record highs this year again?), but the underlying volatility (like the Trade War, Brexit, and high debt) are staying with us. This means that many investors will turn to gold, and countries like China, Russia, and Hungary may also buy more gold in the future to diversify their wealth. This uncertainty and prolonged demand strengthened by central banks can rise gold price further.

World Gold Council believes the same. They wrote that “many of the global dynamics seeded over the past few years will remain generally supportive for gold in 2020.”  Although they also underline that “momentum and speculative positioning may keep gold price volatility elevated”. This means that price swings may happen during the year, but this doesn’t mean that gold isn’t going to recover and go further.

Think about gold and stay diversified

Last year we wrote that gold should have a role in every investor’s diversified portfolio (see: Diversified investments? Gold should have a role in them!), and we stick to that opinion. As the main situation on the global economic scale hasn’t change since 2019, our position remained the same as well: gold is a great choice to diversify, and therefore strengthen any portfolio.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.