Forecasts, Commentary & Analysis on the Economy and Precious Metals
Celebrating our 46th year in the gold business
“The wind now appears to be at gold’s back after six years of slogging.” – David Hay, Evergreen Gavekal
Santa Claus rally in gold and silver crowns a very good year
It was a very good year for precious metals. Gold posted a nearly 19% gain and silver rose over 17%. As you can see in the chart below, the move higher began in early summer defying the annual summer doldrums, hit an impasse during autumn, then ended the year with a surprise Santa Claus rally that took it over the $1520 mark. Silver pushed briefly over the $18 mark in late December then settled at $17.78. Bloomberg Intelligence’s Mike McGlone offers a hopeful tone for our favorite precious metal as 2020 begins:
“It’s a new year and decade and gold is poised to follow the dollar and equities to new highs, in our view. When, should be the primary question, particularly when the stock market and greenback succumb to some normal mean reversion. Absent a new higher dollar and stock-price plateau, gold is set to join the all-time-highs club. Gold prices are on a sound footing for further advancement in the coming year and decade, in our view. Gold prices are on a sound footing for further advancement in the coming year and decade, in our view.”
Gold and Silver Prices (2019)
The importance of gold hitting record highs in most foreign currencies last year
In five of the top eight economies – the United Kingdom, Japan, Canada, Australia, and India – gold posted all-time highs in the local currency during the course of the year. In short, as currencies raced for the bottom, gold raced to the top. “The true hallmark of a bull market in gold,” says veteran technical analyst John Murphy, “is its ability to rise relative to other major currencies. And it’s doing just that.”
“Historically,” adds Atlas Pulse’s Charlie Morris in a recent in-depth report on gold’s prospects for 2020, “it has proved to be important that gold rises in all currencies, and not just in US dollars. This simple test ensures we don’t mistake dollar bear markets for gold bull markets. Since 2000, the world’s best currencies have been the Swiss Franc and the Thai Baht, and gold recently broke higher in both. That implies that gold is rising everywhere.”
Mark Mobius (Mobius Capital Partners) explains in a NewsMax interview why he thinks investors should allocate at least 10% of their portfolios to gold:
“The reason is that gold maintains its status as a currency – a currency that has stood the test of time. There is a growing realization that the supply of fiat money is growing at a rapid pace not only because of central bank activities to drive down interest rates by printing more money but also because of the rapid and inexorable rise of cryptocurrencies. . .They are beginning to realize that fiat currencies like the U.S. dollar and euro really do not have anything behind them except the faith of the public.”
And that, to sum it up, explains why gold has performed so admirably over the past year against the world’s top currencies.
Gold in various world currencies (2019)
Chart courtesy of TradingView.com
The DJIA outperforms gold in 2019, but just barely
Gold has produced positive returns in 16 of the last 19 years. Its average annual return compounded since 2001 is 9.38%. Gold’s appreciation in 2019 was nearly 19% while the Dow Jones Industrial Average was up 22.13%. In short, the DJIA did not do remarkably better than gold in 2019, though you would not know it given the comparative amount of publicity received by each. At the same time, the gains in stocks over the past two years have been shallow. So much so that Hussman Funds John Hussman was moved to offer the following observation:
“Yet for all the bullish exuberance, speculative enthusiasm, and fear-of-missing-out (FOMO) we’ve observed among investors in recent weeks, and indeed, in the past two years, the fact is that a pullback of just 11% in the S&P 500 would place the total return of the S&P 500 Index behind the return on Treasury bills since the January 26, 2018 market high. Given current overextended extremes, the entire gain of the S&P 500 since early-2018 could be given up in a handful of trading sessions.”
“Men, it has been well said,” says Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds, “think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one.” At present we are experiencing a modern-day version of that process at USAGOLD. We do not have a rush to buy gold and silver at the moment. Instead, we are experiencing a steady stream of new and old clientele purchasing to hedge the extremes to which John Hussman alludes above. They are returning to gold one by one, not as a herd. Much of the repeat business is coming from clients who bought early in gold’s secular bull market during the early 2000s.
All of which brings us back to a recent quote from billionaire investor Thomas Kaplan we have posted previously in this newsletter. It sums up with great clarity gold’s role in the private investment portfolio and offers his view of its future. His target price “measured in years” recalls prices in the late 1990s-early 2000s and the multiple returns that came years later as the bull market gained maturity, strength and participants.
“For twelve consecutive years, gold was up every single year whether there were inflation fears, deflation fears; strong dollar, weak dollar; political stability, political instability. It didn’t matter – strong oil, weak oil. . . Gold went up for twelve years. . . When gold embarks upon its next move, I believe that you will see that long wave take gold relatively quickly, but it will be measured in years, up to a $3000 to $5000 target that I believe is fundamentally justified based on the facts we have today. (Bloomberg’s Peer to Peer Conversations with David Rubinstein)
Comparative Investments (2019)
Chart courtesy of TradingView.com
If you think you could benefit from a concise review of the latest news, analysis and opinion on the gold market from a variety of expert sources, then News & Views is the newsletter for you. Since the early 1990s, we have offered it free-of-charge as a monthly service to our regular clientele and as an incentive to prospective clients. By subscribing, you will automatically receive future editions and occasional in-depth Special Reports by e-mail.