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Frank Holmes

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing…

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Gold Climbs Further As Market Sentiment Sours

Gold

Global uncertainty made gold a holiday winner for investors seeking a relatively safe haven. U.S. stocks just logged their worst year since 2008—their worst December since 1931—as fears over global trade, ballooning debt, the end of accommodative central bank policy and a U.S. government shutdown unsettled investors. Against this backdrop, the price of gold rallied late in 2018, reversing a trend of negative returns and weak investor demand that prevailed for most of the year.

The yellow metal, after all, has historically had a strong negative correlation with the market. I’m pleased to report that this inverse relationship held firm in 2018, proving again that investors continue to see gold as a valuable asset in times of financial instability. As you can see in the charts below, gold beat the S&P 500 Index for the month of December, the fourth quarter and the year.

(Click to enlarge)

(Click to enlarge)

(Click to enlarge)

With stocks down, gold’s outperformance shouldn’t come as such a shock to most readers.

What might surprise you is that the precious metal has also beaten the market for the century, 345.39 percent versus 70.62 percent, since December 31, 1999 Related: Macron To Crack Down On Tax Avoiding Executives

This tells me that, even though gold is still down from its 2011 peak, investors continue to value it as an attractive store of value.

Strong Gold Investment on Heightened Stock Volatility

Indeed, gold bulls added substantial positions to ETFs backed by bullion in December as the metal headed for its biggest monthly advance in two years. Gold-backed ETF holdings surged by more than 100 tons between October and December, helping to boost prices even further. During last Thursday’s trading session, ETFs bought 662,080 troy ounces of gold, the biggest one-day increase in at least 12 months, according to Bloomberg.

(Click to enlarge)

Quincy Krosby, chief market strategist at Prudential Financial, explains why this buying is no fluke. Speaking to Bloomberg, she said that “the market is questioning whether the [Federal Reserve] is making a policy mistake, and that could not only lead to slower growth, but perhaps to a recession.” Krosby went on to say that when you see this heavy selling in equities, “it’s indicative of fear, and gold [historically] becomes [favored as a relatively] safe-haven allocation.”

Gold Miners Ended the Year on a High Note

It wasn’t just bullion that had a good quarter. Precious metal miners, as measured by the FTSE Gold Mines Index, gained a remarkable 15.85 percent in the three months ended December 31. Among the leaders in 2018 were Nevsun Resources, up 106 percent for the 12-month period; Kirkland Lake Gold, up 81 percent; SSR Mining, up 45 percent; and North American Palladium, up 38 percent.

By Frank Holmes

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