As 2019 ends, with uncertainty rising but stock prices at record highs, the gold bugs have come out to play.
Gold itself was due to end the year at $1,521 per ounce, close to its September high of $1,550. Mining stocks are also on the rise, with Barrick Gold (NYSE:GOLD) opening Dec. 31 at $18.41 per share, just $1 short of its August high of $19.38.
There are also predictions for a great 2020. “Watch gold,” says Blackstone Group Vice Chairman Byron Wien. Investors in 2019 were much better off watching Blackstone (NYSE:BX), whose stock was up 87% on the year, against GOLD’s 37% gain. The precious metal itself is ending the year on a three-month high.
The question to end your year is, is now the time to buy gold?
The Bulls Roar
Gold bugs do best when inflation is roaring. It’s considered a “safe haven” against rising prices.
That’s what Kristina Hooper, chief investment strategist at Invesco is expecting in 2020. Rising commodity prices could push gold up 10% in the coming year, she says.
There are technical factors underpinning a bull market for gold, according to Clive Maund at Streetwise Report. He believes central bankers are debasing their currencies to support debt. That’s also the argument of Fawad Razaqzada at City Index, who sees gold at $2,000 by the end of next year. Real bond yields are falling, he argues, and any correction in equity prices is bound to be bullish for gold.
Over at FX Empire, Christopher Lewis is expecting gold to “grind” upward, advising that you buy on dips. The holidays mean weak volume, making now a good time to buy.
The Bear Case
Not everyone at FX Empire sees a bull run coming. James Hyerczyk thinks the rally may be overextended. If gold didn’t jump on demonstrators getting into the U.S. embassy at Baghdad, it’s hard to say what will bring about such a spike.
Besides, inflation isn’t the problem for the economy right now. Deflation is. Technology has been driving costs down for decades, letting solar panels substitute for oil, while oil itself becomes easier to find. Technology is also pushing down labor costs, as any freelance writer or Uber (NYSE:UBER) driver will tell you.
Gold had its heyday in the late 1970s, jumping from $135 per ounce in late 1976 to a peak of $668 in January 1980, a gain of over 400%. A second peak occurred in the wake of the 2008 financial crisis, when the price per ounce doubled to over $1,765.
The problem is that, in both cases, the highs were short-lived. Gold was cut in half by 1982 as inflation abated under the prodding of Paul Volcker’s Federal Reserve. Rising stock prices cut gold to as little as $1,054 per ounce by late 2015.
The Bottom Line
Gold has some industrial uses, but it’s mainly a hedge against disaster. Even the most bullish gold bugs, like Leagold chairman Frank Giustra, are recommending only 20% of assets be in the metal.
Given the last decade’s huge gains in stocks, and the growing need of baby boomers for retirement income, conservatism is called for. But if a disaster happens and you must get out quick, are you better off holding gold or Bitcoin?
All your holdings are magnetic ink. That’s the harsh reality of our time. Even your holdings in gold are likely to be electronic in nature, a call on a distant vault.
Protection of asset values is going to be the name of the game for aging populations, but gold is just one way to do that.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.