Gold has had a very good year… but what does the future hold? Tony Coleman shares his thoughts.
Gold opened the year at $1,910 (US$1,275) after a very quiet 2018 Q4 where it moved sideways. Gold tested the US$1,350 level four times in 2018 and just kept bouncing off resistance. It repeated the process in February and then finally in June, due to increasing trade tensions with China the yellow metal blew through resistance to finally top out at $2,400 (US$1,566) on September 4th.
Gold is currently down $140 (US$100) off this high, but still looks strong even though we are having a repeat of Q4 from last year. The market is very sideways with not much on offer from the international front to move it either way. As we head towards Christmas, gold is hovering around $2,270.00 (US$1,457) which shows us a very healthy 19% increase year-on-year. If you sold gold in September, you could have pocketed a 25% gain.
So, it begs the question, where is gold going in 2020? Gold is a contrarian purchase – one we believe is less of an investment and more a store of value, therefore the gold price is usually well supported when other investment areas look risky – that’s why when we see a rise in the VIX (the US Volatility Index) we see gold well supported.
What lies ahead for the global economy given the changing political landscape? The one thing we can guarantee is uncertainty; the UK elections, Brexit, Trump’s impeachment, continued China trade and currency wars, Russia/Ukraine, repo rates going haywire, bank insecurity, lower Kiwi exchange rate, global economic slowdown, government imposed costs due to climate/pollution, transport constraints, budget blowouts … gold looks a sure bet to be right in the middle of things.
I’m not into predicting the future, but gold in NZ dollar terms does look solid. Nothing this government is currently doing gives me confidence that foreign investment is going to pour into New Zealand companies’ coffers, and a strengthening US dollar is supportive of a softer Kiwi. One big advantage of gold is that its base price is in US dollars which protects your purchasing power on a softening NZ dollar.
The NZ dollar has been falling against the US dollar since 27 July 2017. Then the exchange rate was 0.750, it reached a low of 0.620 on 1 October 2019, and after recovering somewhat, looks set to continue its march south. This equates to a 17.4% loss in international buying power in the past 30 months.
Compare gold in NZ dollars over the same period, gold was at $1,682 (27 July 2017) and on 1 October 2019 stood at $2,365, equating to a gain of 40% over the period.
Of course, this does not always hold true, but what it does show, is that a 5-10% portfolio position in gold helps protect your investments in times of uncertainty and has a minimal negative impact on overall profits under normal market operations.
Many of our clients are moving to protect much larger quantities of their investment portfolios – sometimes it is just wise to protect what you have rather than hunt for returns in a risky, dislocated market that is only kept afloat by central bank QE or interest rate reductions. Like most of us, I hate losing money. It affects me as much emotionally as it does financially. I am careful and risk averse, and if I could see a way to make a reasonable risk-free return in this market, I would take it. Unfortunately for the time being everything looks like alligators.
So are we going to see normal market operations in 2020? I fear not, if this year has been anything to go by. We are entering an even higher degree of uncertainty, the banking sector shows they cannot be trusted – they are some of the worlds largest money launderers, with soft balance sheets and hidden derivative exposure.
The question should be, what do I do with my money to keep it safe? Since 2009 I have been in either gold or gold shares. I have learnt more about global markets than I thought I ever could. I understand what makes them go up (and down) and I have learnt that the big prey on the small.
If you have been thinking about gold or protecting your money and you haven’t talked to us, ask yourself why not. We are approachable, knowledgeable, honest and friendly.
There is no procurement ‘too big’ or ‘too small’ – we are experts and we are here for you.
In gold we trust
Tony Coleman, Managing Director