President Trump’s decorators aren’t the only ones bringing gold back into fashion.
Investors, money managers and central banks across the world have piled into gold this year, pushing its price about 50 percent higher and setting a series of records in the process. Gold is approaching $4,000 per ounce for the first time.
Gold, often seen as a haven during times of turmoil, is on course for its best year since 1979, when prices surged over 100 percent during a period of high inflation, a depreciating dollar and a geopolitical crisis in the Middle East.
There are uncomfortable echoes of that past surge today, said analysts, who attributed the recent rise in gold prices to demand from investors looking to shift away from U.S. assets at a time of political upheaval and uncertainty, highlighted by the government shutdown. The gold rally also reflects a strong undercurrent of unease among investors, even as stocks have repeatedly set records, giving Wall Street a bullish air.
Gold has also attracted buyers because other traditional havens, like the dollar and U.S. government bonds, have lost some of their allure. The Federal Reserve is expected to continue cutting interest rates, moves that could continue to weaken the dollar, which has already slumped roughly 10 percent this year. Worries over ballooning debts and deficits have cast a cloud over America’s creditworthiness, which no longer carries a top credit rating from any of the main agencies after a Moody’s downgrade this year.
Another popular haven, the Japanese yen, took a hit on Monday after the surprise election of a leader at the long-governing Liberal Democratic Party who has favored spending, tax cuts and lower interest rates. Later on Monday, the abrupt resignation of France’s prime minister, less than 24 hours after he had formed his cabinet, further destabilized the geopolitical outlook and dragged down the euro, sending investors toward the perceived safety of gold.
The rally in gold has been largely driven by uncertainty, said Ryan McIntyre, a senior managing partner at Sprott, an investment management firm that specializes in precious metals. “Whether that is geopolitical, economic or now there is the interest rate cycle entering people’s minds,” he said.
Exchange traded funds that buy gold purchased over 100 metric tons of the precious metal in September, according to Goldman Sachs. Analysts at the bank forecast that gold will hit $4,300 per ounce at the end of next year.
According to analysts at Barclays, the amount of money flows into the largest gold-backed fund over the past two weeks have only been surpassed once before in the last 20 years.
Rising gold prices have also helped boost the stocks of companies that mine the metal. An index tracking gold-mining companies on the New York Stock Exchange has more than doubled this year.
Some central banks have been shifting out of dollar-denominated assets and into gold for a few years, but the move from private investors is what has added momentum recently, analysts note. Gold has risen sharply in value across major currencies like the yen, euro and British pound.
“It is really becoming more of a strategic reserve asset, both for sovereign nations as well as institutions,” Mr. McIntyre said. “People are using it as a diversifier.”
The government shutdown is the latest factor driving investors toward gold. Market watchers have to do without crucial economic data released by government agencies, raising consternation and confusion about the health of the economy, especially after recent signs of weakness in the labor market.
“Persistent labor market weakness raises the risk of a recession or stagflation, supporting gold allocations,” analysts at State Street Investment Management noted.
Joe Rennison writes about financial markets, a beat that ranges from chronicling the vagaries of the stock market to explaining the often-inscrutable trading decisions of Wall Street insiders.
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