Gold spot prices are above $2,400 an ounce, and are flirting again with a record high of about $2,435 set in late May. Can the yellow metal continue to glitter? Some experts think gold should keep climbing as political uncertainty in the U.S. and abroad remains elevated. The increased likelihood of interest-rate cuts from the Federal Reserve later this year should also weaken the dollar and boost gold.
Gold prices are up more than 17% so far this year, and have gained nearly 4% this month alone.
Gold-miner stocks have taken off lately, too, after lagging behind the performance of the metal earlier this year.
is up nearly 30% in the past month. Shares of
Newmont
,
and
are all up 14% to 18% since mid-June.
Matt Smith, a fund manager with U.K.-based investment firm Ruffer, expects more upside ahead. He told Barron’s that even though inflation pressures are finally starting to fade, higher prices aren’t going away entirely. That should be good for gold, as well as silver and platinum.
“Inflation is coming down but it is not going to disappear. Gold and gold miners are attractive inflation hedges,” Smith said.
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But if the Fed starts cutting rates—perhaps as soon as September—that should be good for gold, too.
Gold, in addition to being a good way to protect against inflation, also tends to do well when interest rates are falling. That’s because the U.S. dollar often weakens during easing cycles and gold, as a tangible asset with a finite supply, holds its value better than paper currencies that can fluctuate based on the moves of central banks. To that end, the
has slid nearly 2% since late June.
Central banks also have a more direct impact on gold. That’s because many of them around the world, particularly in emerging markets such as China, India, Russia, and Turkey, have been voracious buyers of gold. Adding gold to their reserves is a way to diversify their holdings and lessen their reliance on the U.S. dollar. That trend is unlikely to end soon.
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“Central banks continue to buy gold hand over fist,” said Everett Millman, chief market strategist with Gainesville Coins, a gold and silver bullion dealer. “When central banks buy, they buy metric tons of it.”
Millman told Barron’s that he wouldn’t be surprised to see gold prices rise to $2,700 an ounce by the end of the year. That’s nearly 12% above current levels.
And then there are geopolitical risks, which make gold more attractive as a haven. The coming U.S. presidential election, coupled with surprising results from voters in recent elections in France and the U.K., could drive gold prices even higher, Millman said.
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In the U.S. specifically, concerns about how there might be a big increase in fiscal stimulus from Washington (regardless of who wins the race for the White House) could create more inflation pressures again…or worse.
“One reason gold has done well is there is this nagging suspicion that we are heading for stagflation in coming years, and very few assets do well in that environment,” said Nanette Abuhoff Jacobson, global investment strategist at Hartford Funds, in an interview with Barron’s.
“There are concerns about rising deficits and more geopolitical risk, and gold tends to be a store of value,” she added.
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But Jacobson isn’t convinced that the gold rally can last that much longer. She notes that longer-term bond yields have tumbled thanks to cooling inflation. Bond yields and prices move in opposite directions. So investors are clearly flocking to bonds as a potential safe haven trade.
Even Millman said he expects more volatility in gold for the remainder of the year. As the price has climbed higher, he said there has been some “sticker shock” on the part of retail investors in the U.S.
So gold prices could continue to rise. But it may be a bumpy ride.
Write to Paul R. La Monica at paul.lamonica@barrons.com