Gold prices could end the year at more than 15% higher – their biggest annual increase in nine years.
“Gold has seen considerable safe haven buying from investors concerned [over] low and negative yields in the bond market and fearing a possible downturn in equities,” said George Milling-Stanley, chief gold strategist at State Street Global Advisors. Gold exchange-traded funds have also been “feeling the benefit of strategic asset allocation type buying by institutions and individuals.”
He added: “Ongoing uncertainties, both macroeconomic and geopolitical have provided support for both types of buying.”
Gold remained steady on Monday as investors sought clarity on what “phase one” of the trade deal between the United States and China would be.
Spot gold decreased 0.1% to $1,474.46 per ounce on Monday after gaining 1.1% last week.
“This (trade deal) does not mean things get fundamentally better; it essentially means they’re not going to get any deeper into a slowdown … There still are risks down the road,” said Bart Melek, head of commodity strategies at TD Securities. “A combination of expectations of high (trade) deficit, lower interest rates and U.S. political risks emerging during election year, all point to investors wanting to at least have some gold in their portfolio.”
The uncertainty over what “phase one” will look like has kept gold steady.
“These overall concerns are still keeping gold prices relatively elevated,”said FXTM market analyst Han Tan.
Elsewhere, palladium jumped 2% to $1,969.41 an ounce. The autocatalyst metal struck an all-time high of $1,979.95 on Friday, when it also snapped a 15 session-long winning streak that saw it repeatedly breaking new records.
Gold futures ended on Friday at $1,481.20 per ounce. The prices of the most-active contract up 15% year to date, making it the largest yearly rise since 2010, back when prices increased by nearly 30%.
Milling-Stanley is surprised by how quickly gold increase in price after sitting below $1,350 level this past summer, constituting “the upper bound of the trading range that had been in existence for six years, since the spring of 2013.”
In June, Federal Reserve Chairman Jerome Powell said he would “make a mid-cycle adjustment and give the markets the interest rate cut they had been clamoring for, gold rapidly rose to over $1,550 an ounce by September,” according to Milling-Stanley.
Gold futures reached $1,560 on September 4, marking the highest settlement price since April 2013.
The U.S. central bank cut interest rates three times in 2019, and then on Dec. 11 held its benchmark interest rate steady at a range of 1.5% and 1.75%.
Between early 2001 to late 2010, gold prices increased from $250 an ounce to $1,250 per ounce. That’s an “average gain of $100 per year,” said Milling-Stanley.
He believes this was due “to increasing jewelry purchases throughout the emerging markets on the back of sustained good economic growth in the region.”
He noted that “speculative activity” drove prices up $1500 in just nine months in 2011. As speculative interest decreased, gold prices fell back to $1,250 level in the spring of 2013. While Milling-Stanley is “hoping for modest, sustainable gains in gold over the coming years,” he is also “acutely conscious of the power the speculative community can have over gold in the short term.”
Milling-Stanley added: “I don’t believe the speculative community will want once again to risk missing the first 10 years of a bull market in gold, and the first $1,000 rise in the price, as it did at the beginning of this century.”
Meanwhile, platinum was flat at $928.22, and silver increased slightly to 0.3% higher to $16.99.
Palladium’s bull run has been caused by a structural deficit, while platinum has been in a surplus, according to Wall Street bank Goldman Sachs.
“However, substitution of palladium for platinum is unlikely to happen until extreme physical shortages develop which create problems in producing automobiles to force the automakers to make expensive investments to make the switch. Until then, palladium will likely continue to outperform platinum.”