Gold may keep its allure in 2020 amid uncertainty, say analysts

Bullion is heading for the biggest annual advance since 2010. Still, with equities still buoyant and the US labour market proving resilient, gold's outlook is not clear-cut due to uncertainty over what central banks will do. PHOTO: REUTERS

Gold's impressive advance this year - aided by trade war frictions, easier monetary policy across the world's leading economies and sustained central-bank buying - may be set to spill into the new decade.

As 2020 looms, BlackRock, the world's largest money manager, remains constructive on bullion as a hedge, while Goldman Sachs Group and UBS Group see prices climbing to US$1,600 an ounce, a level last seen in 2013.

Bullion is heading for the biggest annual advance since 2010, outperforming the Bloomberg Commodity Spot Index, as a year dominated by trade war vicissitudes and a trio of Federal Reserve interest rate cuts propelled the traditional haven to the forefront. Still, with global equities remaining buoyant and the US labour market proving resilient, gold's outlook is not clear-cut due to uncertainty over what central banks will do in 2020.

"Economic growth and inflation remain moderate and central banks continue to lean toward accommodation," said Mr Russ Koesterich, portfolio manager at the US$24 billion (S$32.6 billion) BlackRock Global Allocation Fund. "In this environment, any shocks to equities are likely to come from concerns over growth and/or geopolitics. In both scenarios, gold is likely to prove an effective hedge."

Spot gold - which last traded at about US$1,460 an ounce - is up 14 per cent this year, on course for the third annual gain in the past four years. In September, the metal hit US$1,557.11, the highest since 2013. While holdings in bullion-backed, exchange traded funds have eased, they remain near a record.

Geopolitical and economic risks are likely to feature in 2020, which could support gold: a phase-one trade deal between the top two economies may be close, but the US has pledged to impose tariffs on more imports if a deal is not struck by Sunday.

The US presidential vote looms in November 2020, and before that, there is the possible impeachment of the incumbent. Mr Donald Trump has said many things on the trade war, his stance shifting week to week, including recent remarks that he likes the idea of waiting until after the polls to sign a deal.

While gold has been buoyed by the ongoing trade war, risk assets like US stocks are also finding support from optimism about a breakthrough - the question is: Which one will prevail and which one is due for a pullback? Invesco's Ms Kristina Hooper, who sees prospects for a 5 per cent to 8 per cent gain in gold next year, thinks stocks will outshine bullion.

Gold will "have certain periods of outperformance when we go risk-off", said the chief global market strategist at the US$1.2 trillion asset manager. Yet, " it will not be one of the strongest-performing assets". "Equities will perform better, real estate will perform better and industrial metals will perform better."

But should there be economic weakness next year, stocks will decline and the Fed will likely resume lowering rates, boosting non-interest-yielding bullion, said Gabelli Gold Fund analyst Chris Mancini.

The Fed has paused on easing after cutting rates from July to October by three-quarters of a percentage point as growth slowed, business sentiment was hurt by trade uncertainties, and inflation remained below target. Officials meet today for the last time this year.

While most see a prolonged pause, there are dissenters. Another two rate cuts are expected in the first half, said BNP Paribas. The low-yield environment, along with the anticipated weakening of the US dollar and likely reflation policies, will continue to support gold, the bank said this month.

Bullion buying by governments has emerged as an important pillar of demand. Central banks are consuming a fifth of global supply, signalling a shift away from the US dollar, said Goldman.

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A version of this article appeared in the print edition of The Straits Times on December 11, 2019, with the headline Gold may keep its allure in 2020 amid uncertainty, say analysts. Subscribe