Gold News

Gold Beats Stocks Yet Again

Not just at end-2018...

GLOBAL uncertainty made gold a holiday winner for investors seeking a relatively safe haven, writes Frank Holmes at US Global Investors.

US 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 US 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.

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% versus 70.62%, since December 31, 1999.

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.

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 tonnes between October and December, helping to boost prices even further.

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."

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% in the three months ended December 31. Among the leaders in 2018 were Nevsun Resources, up 106% for the 12-month period; Kirkland Lake Gold, up 81%; SSR Mining, up 45%; and North American Palladium, up 38%.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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