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By: Frank E. Holmes, Chairman/CEO/CIO of U.S. Global Investors, Inc.,
— Published: Tuesday, 14 January 2020 |
Near
the start of every year, I share our ever-popular Periodic Table of
Commodity Returns, now updated to reflect the final results of 2019. To
view the interactive table and download a copy of your own, click here.
- Having
broken above $2,000 an ounce last week, palladium in now forecast by
Citi analysts to hit $2,500 by the middle of this year.
Commodities
as a whole had a mostly positive 2019, returning 16.53 percent as
measured by the S&P GSCI. This far surpasses commodities’ five-year
average return of about negative 11.52 percent, between 2014 and 2018.
Precious
metals were responsible for much of the growth. For the third straight
year, and for the fourth time in six years, palladium was the
top-performing commodity. The metal, used widely in the production of
catalytic converters, increased an incredible 54.21 percent to end 2019
at $1,912 an ounce, a slightly higher price than gold’s all-time high
set in September 2011.
As
was the case in past years, palladium benefited from mounting global
demand to curb emissions from gasoline-burning engines. It’s also among
the world’s scarcest precious metals, mined primarily in Russia and
South Africa, which means supply will potentially remain in deficit for
years to come.
Having
broken above $2,000 an ounce last week, palladium in now forecast by
Citi analysts to hit $2,500 by the middle of this year.
Gold Price Up in Four out of Every Five Years
Gold,
meanwhile, had its best year since 2010, climbing as much as 18.31
percent. The yellow metal’s role as an exceptional store of value shined
brightly in the second half of the year when the pool of negative-yielding debt
around the world began to skyrocket, eventually topping out at around
$17 trillion in August. On the news last week that Iran launched a
counterstrike against U.S.-occupied military bases in Iraq, the safe
haven briefly broke above $1,600 an ounce for the first time since April
2013.
In
the past two decades, gold has helped investors limit market volatility
and portfolio losses. Between 2000 and 2019, the precious metal’s
average annual price was down in only four years. Put another way, gold
was up on average in four out of every five years—a remarkable track
record.
Safe
haven-seeking investors around the world piled into gold-backed ETFs in
2019, making it the best year on record for gold holdings. Assets under
management (AUM) in gold bullion ETFs expanded 37 percent from the
previous year, adding $19.2 billion, or 400 tonnes, according to the World Gold Council (WGC).
During the fourth quarter, total holdings hit a jaw-dropping 2,900
tonnes, the equivalent of 102 million ounces, which is the most on
record.
As
of the end of last week, gold looked slightly overbought on a relative
strength basis, meaning a correction wouldn’t be such a bad thing and in
fact expected.
Has the Greenback Peaked?
Short
of escalating tensions in the Middle East or a pullback in stocks, the
catalyst for higher gold prices—and, indeed, commodity prices in
general—may very well be a substantial weakening of the U.S. dollar. On
Tuesday, the U.S. Dollar Index experienced a “death cross,†a bearish
signal that takes places when an asset’s 50-day moving average crosses
below its 200-day moving average. We haven’t seen this from the
greenback since May 2017.
Other
firms and analysts have recently made the case that the dollar is ready
to decline in 2020, which would give gold and other hard assets the
room to gain momentum. Below are just three such forecasts from the past
couple of weeks:
“Our
view is that the dollar is ready to decline in 2020 and will be
encouraged to do so as negative interest rates abroad turn less negative
while the Fed holds pat (or cuts)… In the event of an unlikely
recession in 2020, U.S. fiscal and monetary policy will turn sharply
expansionary, the dollar will decline further, and gold will do well.â€
~Murenbeeld & Co., January 3
“We
expect that U.S. dollar weakness will likely characterize global
financial markets throughout 2020… A weaker dollar is always good news
for commodity prices. We are particularly bullish gold at this point.
Gold is a direct play on a weaker dollar and could also benefit from any
major flare-up in geopolitical tensions.â€
~Alpine Macro, January 6
“Starting
2020, the key setup from a macro perspective is the confirmed top in
the U.S. Dollar Index as well as the U.S. Trade-Weighted Broad Dollar
Index… The U.S. Dollar Index (DXY) has broken below the 97 support to
trigger the bearish implication of the June-December topping pattern
(head-and-shoulders top) and the U.S. Trade-Weighted Broad Dollar Index
has broken below the early-November 2019 low as well as the 200-day
moving average to confirm a similar topping pattern to the DXY.â€
~CLSA, January 7
Bitcoin as a Safe Haven Asset
Gold
isn’t the only asset that responded positively to geopolitical
uncertainty involving Iran. The price of bitcoin, the world’s largest
cryptocurrency by market cap, surged on the news that President Donald
Trump had ordered a strike on Iranian general Qasem Soleimani, before
commenting that the U.S. was targeting as many as 52 sites in Iran.
From
January 2, the day before the strike, to January 8, when Trump
announced that Iran appeared to be “standing down,†bitcoin traded up as
much as 21 percent to its highest level in six weeks. In addition,
there were reports that local bitcoin sellers in Iran were charging three times the market rate in response to the threat of war with the U.S.
Google searches for “bitcoin†were also up. Cointelegraph reports that the search term “bitcoin Iran†exploded more than 4,450 percent in the seven days through January 8.
All
of this tells me that bitcoin continues to mature as an asset, and that
investors and savers increasingly trust it as a store of value in times
of uncertainty.
Looking for the inside scoop on mining companies? Click here
to read U.S. Global Investors portfolio manager Ralph Aldis’ interview
with MoneyShow and get his favorite mining picks for 2020!
Source: http://news.goldseek.com/USFunds/1579015085.php
