Gold Trends 2019: 5 Year High Leaves Market Wanting More

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After spending the first six months of 2019 below the coveted US$1,400 an ounce mark, gold broke its rangebound levels in the last half of the year and hit a five year high.

The positive performance from the yellow metal during the final two quarters of 2019 has been attributed to persistent tensions surrounding a trade deal between Beijing and Washington — heated negotiations that have drawn on for more than 18 months. 

As the year comes to an end, the Investing News Network (INN) is looking back at the main gold trends of 2019, from the impact of US Federal Reserve’s three interest rate cuts during H2 to widespread geopolitical uncertainty and a steady increase in global debt.

Despite starting 2019 at US$1,283.20, its lowest point year-to-date, the value of gold climbed 15 percent during the year and was sitting at US$1,476.90 on December 3. 

Gold trends Q1: Low US dollar drives gold higher

The US dollar slipped to its lowest point all year on January 9, when the US dollar index was at 95.14, and investors began looking togold bullion for its safe haven status. That led to theprecious metal starting its 12 month ascent.

“The US dollar, we think, is going to start its long-term downtrend,” Chantelle Schieven, research head at Murenbeeld & Co., told INN in an interview at the Prospectors & Developers Association of Canada convention in March.

By January 31, gold had reached a nine month high of US$1,320.70 as the greenback fell lower.

Ongoing tariff and trade issues between China and the US, as well as geopolitical unrest brought on by Brexit, both benefited gold during the first three months of the year. Issues stemming from the Middle East in terms of nuclear pacts andoil trade routes also helped move gold upward.

The valuable metal was able to break out of the US$1,200 range at the end of January and remained there until early March.

Gold trends Q2: Weakening US economy propels gold

Thesecond quarter of the year started with gold sitting at US$1,291; by the end of June, the metal had climbed 7 percent to reach US$1,408.

“For Q2, geopolitical events, namely the US-Iran conflict, pushed gold past the US$1,400 price level to a six year high. This, coupled with slower economic growth (i.e. weak jobs report for May), led to easier monetary policy expectations, which will help support gold around US$1,400,” Schieven told INN.

Geopolitical tensions were heightened towards the end of Q2, when US President Donald Trump brought his tough tariff talk to dealings with Iran and Mexico.

Concern that China’s economy was slowing helped push the yellow metal over the US$1,350 mark in mid-June, when data indicated China’s industrial output had fallen to a 17 year low of 5 percent.

As macroeconomic fears heightened, June marked the beginning of gold’s steady climb to US$1,500.

“Gold prices continued to rise through June on higher safe haven demand, amid disappointing global macroeconomic data and heightened trade tensions between the US and China,” states a report released that month by FocusEconomics.

The global landscape was a major topic of the Fed’s June meeting, when the central bank decided to cut interest rates and foreshadowed a potential rate cut in Q3.

Gold trends Q3: Fed cuts rates, gold moves up

The first 60 days of Q3 were positive for gold, which spent the period climbing from US$1,384 at the beginning of July to US$1,517 on August 30.

Renewed interest in the metal’s safe haven status helped move prices 2 percent higher for the month.

Mid-month, gold hit US$1,445.50 — a five year high and a precursor to the sustained growth the metal would experience for the remainder of the year.

“Everything revolves around gold right now. The key trend is for gold to convince the investing community that the recent six year high, breaking out from overhead resistance, is the beginning of a major move to the upside,” Mitsubishi’s (OTC Pink:MSBHF,TSE:8058) Jonathan Butler said at the time. 

August saw the Fed cut interest rates by a quarter point for the first time since 2008.

Immediately after the reduction, the US dollar rallied and gold went down temporarily. The metal was able to recover its losses quickly and again began ascending, climbing by US$59 between August 1 (US$1,448) and August 9 (US$1,507).

In its statement, the Fed remained vague about whether another cut would come in the future.

“If global conditions, i.e. global trade, worsen, and economic data is weaker, then the Fed could cut again by year end,” said Schieven in a July conversation with INN. “But if economic data is about the same or better, the Fed is likely to hold for now. The uncertainty surrounding the next move … will likely create additional volatility around each major US data release, and the upcoming Fed statements, until a more solid direction is projected by the Fed.”

As the precious metal continued its 2019 uptick, analysts and market watchers began speculating on the heights the price could reach.

Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX,NYSE:MUX), said he sees gold eventually hitting US$5,000, with the potential to go higher.

For his part, John Kaiser of Kaiser Research said he believes that as gold trends higher, investor interest should peak when the price goes north of 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 range,”he told INN in August at the Sprott Natural Resource Symposium. “The public won’t come in until they see gold really challenge the US$2,000 mark.”

In early September, gold hit its highest point of the year at US$1,553, as central banks around the world increased the amount of the yellow metal they were keeping on hand.

Gold trends Q4: Will the Fed cut rates again?

After gold’s move in Q3, market participants remain optimistic about its prospects moving forward.

“I actually think US$3,000 to US$5,000 is very reasonable,”said the Outsider Club’s Gerardo Del Real.

“If you look at it, we’re at US$1,500 right now, so US$3,000 is a 100 percent move … a 100 percent move in gold isn’t by any stretch of the world (an) incredible performance if we’re talking the next five to seven years,” he noted at this year’s New Orleans Investment Conference in early November.

However, due to its status as a rainy day investment, some of the events that need to occur to drive gold above US$2,500 would be detrimental to the rest of the market and countries around the world.

“I think it’s going to get more volatile, unfortunately,” Del Real continued. “There’s a real human toll to that. So yes, we can be excited about US$3,000 to US$5,000 gold, but, you know, understand that it’s going to come with a lot of volatility.”

For context, gold’s all time high was US$1,920.30 — a price it reached in September 2011.

Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence and author of “Fed Up,” a book that looks critically at the Fed, also spoke in New Orleans about some of the factors that she believes are leading to a potential global economic crisis.

She said that economic trends to watch include over-indebtedness as global debt surpasses US$250 trillion, a decline in business investment and ill-rated bonds paraded as investment grade.

All the uncertainty, according to the former Federal Reserve Bank of Dallas employee, will add to gold’s allure as an economic refuge.

“(T)here is still much more uncertainty about liquidity, about the debt markets, about why the Fed has got the printing press up and running 24/7, and the more of that you have building in the background, the more investors are going to feel the need to hedge their portfolios to protect for that unknown,” she said. “The most logical place to do that is where they can get the truest diversification, and that is going to be in your precious metals/gold complex.”

Gold began slipping at the beginning of November following the third Fed rate cut in four months. This was likely the result of the strong US dollar, which countered gold’s slip with gains of its own.

Despite losing some of the progress it made in September, the yellow metal was still up 15 percent year-to-date as of December 3.

Brian Leni of Junior Stock Review foresees gold’s strength lasting into 2020 due to increasing political unrest in Hong Kong and elsewhere, the looming US election and growing personal debt.

“Given this, I see a higher probability that we will see sustained gold prices above US$1,500 in 2020, with the chance of breaking the historical high of over US$1,900, if the worst scenario plays out,” he said.

At the Fed’s last meeting for the year (December 11), the central bank decided to hold interest rates at 1.5 to 1.75 percent and signaled that it will keep rates paused into 2020.

Although the central bank has removed references to “uncertainty” from its outlook, Chair Jerome Powell said he is worried about low inflation rates. Powell also noted that the Fed will continue to stimulate the US economy until the inflation rate exceeds 2 percent; it is currently at 1.6 percent. 

Want to learn about gold in 2020? Click here to read what analysts anticipate for gold next year, and click here to see what gold company executives say is coming.

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

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.