Time for Gold to Shine?
(Note: all the sources listed in the “Balanced” section)
Gold investors remember the good old days, the period from 2001 to 2011 when gold prices climbed 475% from $272 per ounce at the end of 2000 to $1,563 per ounce at the end of 2011. During that period, gold reached a low of $255 per ounce, peaked at $1,901 and averaged $705 per ounce. The key drivers for the “Gold Rush” were: 1) selling among central banks abated, 2) gold production was constrained, 3) new investment vehicles, such as exchange-traded funds, made it easier to invest in gold, and 4) the U.S. dollar weakened during much of the period. Since that time, gold prices have languished and seem to be stuck in a trading range for the past 4 years between $1,051 and $1,366.
During the first three quarters of 2018, the price of gold declined 8.5% to $1,191. After a 1.7% increase during the first quarter that provided a glimmer of hope, gold prices declined 5.4% and 4.9% during the second and third quarters, respectively. According to the World Gold Council, third quarter gold demand grew less than 1% on a year-over-year basis to 664.3 tonnes. While bar and coin demand increased 28%, central bank demand increased 22% and jewelry demand increased 6%, outflows in gold-backed ETFs offset much of this growth. 1
During the fourth quarter through November 14, gold prices rose 1.6% to close at $1,211 per ounce. Gold’s strength at the beginning of the fourth quarter may be attributed to increased financial market volatility driven by geopolitical tensions and concerns about domestic and global economic growth. Additionally, reports that central banks may increase purchases of gold, especially among those representing emerging markets, may have provided a boost to investor sentiment. In the comparable time frame, the performance of the broader market indices was volatile with the S&P 500 posting a 7.3% decline during the period. Gold may have performed its role as a “safe-haven” investment.
Gold investors may be wondering if the promising start to the fourth quarter will signal continued gains for gold or will it turn into a head fake?