Gold Outlook 2020: Gold Soars Amid Increasing Headwinds

- December 10th, 2018

What’s ahead for the gold price next year? Analysts share their thoughts on the gold outlook for 2020 and key factors to watch.

The price of gold has climbed by 15 percent since January, stimulated by increasing global debt, geopolitical turmoil and fears of an economic collapse. The prolonged uncertainty revolving the trade war helped the yellow metal break the US$1,400 per ounce threshold and remain there for the last six months.

In September, gold broke the US$1,500 mark to hit a five-year high of US$1,553. Within days it had settled back below US$1,500, and has remained in the US$1,450 to US$1,530 range since. As of December 5, the precious metal was trading for US$1,476.70.

With the start of 2020 approaching quickly, many investors are now wondering if gold will sustain its gains from 2019 throughout the New Year. Here, the Investing News Network (INN) looks back at gold’s performance in 2019 and what analysts expect in 2020.

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Gold outlook 2020: Price performance recap

Unlike 2018, where the metal started the year strong then spent the last six months below US$1,260, the story for 2019 was the reverse. Marked by a slow start from January through June, where the price stayed below US$1,321 and was as low as US$1,266 in May, followed by a subsequent price surge that saw gold hit its highest price since March of 2013 — US$1,553 on September 4.

“Gold prices made steady gains throughout 2019 as the effects of ongoing US-China trade tensions took a mounting toll on the global economy,” said Lindsey Ice, an economist at FocusEconomics.

gold price chart

Price chart via Kitco

While the China-US trade deal has impacted the precious metals sector, volatility brought on by Brexit tensions, Hong Kong protests, the disintegration of the Iran nuclear pact and a drone attack on Saudi oil fields all helped the yellow metal rally in the latter half of the year.

Jeffrey Christian, managing partner of commodity research company CPM Group, expected the price to rebound in 2019, but did not foresee the rapid ascent.

“We expected prices to be weak in the first half of the year 2019 but strengthen in the second half. The price followed that pattern, but started rising earlier and rose more sharply than we had anticipated,” he said.

At the end of 2018, analysts urged investors to keep an eye on the Federal Reserve, and the American central bank did not disappoint.

The central bank cut interests rates three times in the latter half of the year. While the US dollar has moved higher with every rate cut, Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, warns of the potential to be lulled into a false sense of security easy money often entails.

“If the Federal Reserve holds interest rates too low for too long then investors are going to behave differently and they are going to invest and trade amongst one another differently knowing that they can take more risk on, because if something is to go wrong the Fed’s got their back, and that completely distorts the whole price discovery and the whole idea of risk, reward and consequences you take on for speculating,” the author of “Fed Up” told INN.

The price of gold was briefly impacted by each rate reduction, however, it was able to rebound and regain ground lost, as central banks around the world began upping the amount of gold they were purchasing.

Frank Holmes, CEO of US Global Investors (NASDAQ:GROW), was surprised by the amount of the precious metal the banks were buying.

“There are the well-known buyers, such as Russia and China, but more countries emerged as gold bulls,” he said. “From Latin America to Eastern Europe, there were surprises in central banks adding to their gold reserves — Poland, Serbia, Colombia and Brazil — to name a few.”

With banks snatching up bullion and increased investor interest, the price of gold has spent the last six months above the US$1,400 mark — a feat it had not achieved since 2013.

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“We saw the broadening out of the precious metals trade in the third quarter with silver and platinum showing some price strength,” Frank Aldis, portfolio manager and senior mining analyst at US Global, told INN. “Gold established a new trading range just under US$1,500 an ounce.”

Gold exchange traded funds (ETFs) have benefited from the heightened interest in the yellow metal, recording a record high in August of US$6 billion, according to the World Gold Council, but lost some ground in November.

“Investors are misallocating capital to passive gold mining equity ETFs where size and liquidity is valued poorly at the expense of higher investment returns through active portfolio management,” Aldis said about last month’s ETFs performance.

Although gold ETFs have picked up steam in 2019, Christian believes investor sentiment remains subdued.

“Gold investment demand remains very low,” he said. “While prices rose after late June, the buying that pushed prices higher was primarily in Comex futures and options, London and New York forwards, and some ETF buying. Longer term investors buying physical gold, in bars, coins and other forms, have remained on the sideline. The price increase has been predicated on shorter term investors in futures and options.”

Gold outlook 2020: The year ahead

For the year ahead, analysts were mixed on what investors can expect from the gold market and precious metals sector as a whole.

Rick Rule of Sprott (TSX:SII) wants investors to remember it’s a marathon not a race, and keeping pace in a bull market is more important than leading the pack.

“If you have a cycle where the index has moved 200 percent to 1,200 percent on the upside, you don’t need to outperform the market, you just need to perform with the market. So rather than increase risk to try and outperform an already hot market, our belief is that most investors should try to reduce risk — buy the best five or six stocks in the industry, hold on for the two or three year time frame,” Rule told INN at the New Orleans Investment Conference.

Christian emphasizes keeping track of the economy, financial market stability and intergovernmental and international politics.

Political issues closer to home were top of mind for Aldis.

“Investors should pay attention to any disruptions to overnight money liquidity or the unfolding of a credit problem,” he said. “Presidential elections later in the year should be interesting. In 2016, gold rallied strongly up until President Trump won the election. A Democratic win in 2020 could give gold an unexpected boost.”

The November 2020 election could play a pivotal role in geopolitical relations as well as the markets.

Tariffs between the US and China on billions of dollars’ worth of goods have been in effect since 2018. A phase one deal had been expected in early November however negotiations between the two powerhouse nations are still ongoing, and have been strained in recent weeks when the White House passed two bills in support of Hong Kong protesters.

A new round of tariffs on roughly US$156 billions of Chinese imports is supposed to take effect on December 15, and the president has reinstated tariffs on aluminum and steel imports from Brazil and Argentina adding more opaqueness to an already murky situation.

For FocusEconomics’ Ice, the oscillation on the trade deal has sent the markets into limbo over the last year, leaving the majority of FocusEconomics panelists bullish on the gold outlook.

“This trend will likely continue until a more clear-cut resolution emerges. The likelihood the row will persist well into 2020 signifies gold prices should remain elevated. Moreover, leading central banks such as the Fed, the ECB and the BoJ are expected to keep monetary policy accommodative next year, which will also support the outlook for gold prices.”

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While the outlook for gold is bullish in the near term, Ice noted that prolonged trade uncertainty, paired with Brexit indecision and Middle East tensions will leave the price, “extremely sensitive to shifts in global sentiment.”

Gold outlook 2020: Price forecast

Throughout the year, INN spoke with analysts and experts at various conferences and events, the overwhelming sentiment has been gold can and will move higher as uncertainty and unrest grow globally.

John Kaiser of Kaiser Research foresees investor interest perking up as gold surpasses US$1,900.

“I think we are in the early stages of seeing a massive repricing of gold into the US$2,000 to US$3,000 per ounce range,” he told INN in August. “The public won’t come in until they see gold really challenge the US$2,000 mark.”

In September, Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX,NYSE:MUX), said he believes the yellow metal has the potential to hit US$5,000 and continue trending higher.

At Mines and Money London in late November, Dr. Torsten Dennin, head of Asset Management Switzerland and a professor of economics and finance, told INN the sector had finally broken out of its rut and was poised to trend higher, at a moderate pace.

“(The) last three to four years have been pretty boring on the gold side I have to confess, as it has been in the commodity sphere in general. But lots of analysts pointed out that this year we’ve seen some technical breakthroughs in the gold price. It was rather useful to have the gold price headed up above US$1,400 (per ounce), targeting US$1,500.”

He added, “We could see — probably not next year, but in the next couple of years — prices between US$2,000 to US$2,200 in regard to the economic situation,”

As noted, gold’s current range is indicative of a host of issues in both the financial and political realm, issues Junior Stock Review’s Brian Leni doesn’t see changing anytime soon.

“Breaking US$1500 per ounce speaks to the level of risk that investors see in the broader market,” said Leni. “Personally, I don’t see any of the major fundamentals changing for the positive in the future, as I believe it’s more likely that we see continued low interest rates, further accumulation of both government and personal debt and, finally, increased chaos in terms of civil unrest – examples Hong Kong, South America and possibly the US because it’s an important election year.”

Leni suggest investors looking for juniors should keep an eye on O3 Mining (TSXV:OIII,OTC Pink:OQMGF), Irving Resources (CSE:IRV), AbraPlata Resources (TSXV:ABRA,OTC Pink:ABBRF) and Eclipse Gold Mining.

For Holmes of US Global Investors gold price suppression remains a key issue and one he will be watching in the New Year.

“I remain concerned about the suppression of the gold price by the Bank of International Settlements (BIS),” said Holmes. “Another growing threat is ESG – environmental, social and corporate governance. Shareholders are increasingly demanding that miners become more environmentally friendly, which, while admirable, could translate into higher costs.

He also offered some stock picks, GoldSpot Discoveries (TSXV:SPOT) and Ivanhoe Mines (TSX:IVN,OTCQX:IVPAF). Aldis also provided his top three picks: TriStar Gold (TSXV:TSG,OTCQB:TSGZF), K92 Mining (TSXV:KNT,OTCQX:KNTNF) and Cardinal Resources (TSX:CDV,ASX:CDV).

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: GoldSpot Discoveries is a client of the Investing News Network. This article is not paid-for content.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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