Global markets take a shine to gold

Gold is on track to post its best annual performance since 2010.

Global challenges have created a strong year for gold producers. Picture: Reuters

Gold is on track to post its best annual performance since 2010, underscoring how a host of global economic challenges are supporting the haven metal even as stocks rally to new highs.

The price of gold tends to swing based on geopolitical tensions and investor confidence in global growth. The precious metal often rallies when investors are skittish and trying to protect against a broad market downturn and stalls when there are few hurdles on the horizon for stocks.

After weeks of listless trading, prices have advanced in five of the last six sessions to hit their highest level in three months. They are up 18 per cent for the year and about 2.4 per cent below their six-year peak hit in early September. Gold traded on Friday at $US1513.80 per ounce. The strong year has been a boon for shares of gold producers such as Barrick Gold and Newmont Goldcorp, many of which also posted outsize gains.

Although an initial US-China trade pact and better-than-expected economic data around the world are supporting riskier investments late in the year, questions remain about future negotiations between the world’s two largest economies. Stagnant growth in Europe and Japan, a wave of recent protests from Latin America to Hong Kong and the coming 2020 US presidential election are also lifting demand for gold.

“The market is being supported by increasing risks around the world, whether they’re geopolitical or financial,” said Joe Foster, who runs the VanEck International Investors Gold Fund. “It’s been pretty resilient.”

Mr Foster has maintained investments in gold and silver miners recently, expecting precious metals to continue performing well. Gold and stocks also logged sizeable gains in 2017, again showing how both investments can rally at the same time during times of heightened geopolitical uncertainty. Stock traders have been using options to hedge against a market downturn, a trend some analysts think could continue ahead of next year’s presidential election.

Analysts are also monitoring a rebound in bond yields around the globe because higher yields make gold and silver less appealing to investors seeking returns from safer assets. The yield on the benchmark 10-year US Treasury note, which affects everything from mortgages to student debt, has climbed back near 1.9 per cent after sliding to a three-year low of 1.46 per cent in early September.

The recovery in yields comes after the Federal Reserve indicated plans to leave borrowing costs where they are and signalled confidence in the economy after cutting interest rates three times earlier in the year. Still, some analysts are unsure about how much higher yields can climb, reflecting uncertainty about whether global growth can accelerate next year. Economic data in the US and China has picked up, but some investors are waiting to find out how the “phase one” trade deal will impact the world economy.

“Is it enough to be a real propellant for economic growth going forward? It’s hard to know,” said Chris Mancini, an analyst at the Gabelli Gold Fund. Mr Mancini has also stuck with his investments in gold miners because he is waiting to see how economic data and monetary policy affect markets.

Another factor boosting gold is weakness in the dollar. The US currency is 2 per cent below a peak it hit against a basket of currencies late in the third quarter, supporting assets like gold that are denominated in dollars and become cheaper to overseas buyers when the currency weakens.

Shares of some large gold producers have also benefited. Barrick Gold is still up 36 per cent for the year, while Newmont Goldcorp shares are up 23 per cent.