Over the last several weeks, gold and precious metals have generated some of the most impressive price trends in the financial markets.
After hitting lows of $1,160.37 per ounce last August, recent rallies have vaulted current valuations in gold’s front-month futures contract toward gains of 22.4% for the period.
Surprisingly, these results surpass the performances witnessed in the S&P 500 by a wide margin. Over the same period of time, the S&P 500 has produced tepid gains of just 5.4%.
Unfortunately, this general lack of progress in the blue-chip benchmark has left many market participants searching for alternative investment strategies.
Challenges have only been exacerbated by renewed forecasts highlighting increased chances of recession before the end of next year. If this continues, gold assets (and other precious metals safe havens) may benefit as protective hedges and continue to outperform the S&P 500 in 2019.
Essentially, these types of scenarios can create difficulties for retirement investors in search of high-yield portfolio opportunities capable of generating consistent income. This is because central banks are ultimately forced into positions where it becomes problematic (or even impossible) to fight inflation by raising interest rate levels. When this occurs, the economic ripple effects felt throughout the country can be quite dramatic and most of the recent data reports point toward continued uncertainties in the months ahead.
Last month’s ADP employment figures (which measure new hires in the private sector) rose by only 27,000, which is the slowest rate of jobs growth in nearly a decade. Weaker prospects for growth have placed the Federal Reserve in a delicate position, and recent policy statements have confirmed the market’s mounting concerns. Earlier this month, St. Louis Fed President James Bullard made prescient statements concerning U.S. monetary policy which suggested interest rate levels are “inappropriately high” after recent inversions in the yield curve.
Bullard’s comments immediately resulted in revised forecasts from Barclay’s analysts, which raised expectations for a rate cut of as much as 50 basis points in July.
Essentially, these deteriorating circumstances have built a foundation upon which precious metals assets could continue to rally over the next several quarters. Measured gains of +20% in gold might seem like an isolated event, given the ways financial media outlets have fed into the exuberance and enthusiastically spun lackluster moves higher in the blue-chip indexes.
However, long-term reversals have also become visible in both silver and platinum, so this influx of cash into safe haven instruments should start to become visible in equities valuations in the months ahead.
After hitting lows of $13.89 per ounce last November, silver prices have exhibited very solid gains of 11.2%. Since August, platinum prices have also surpassed performances in the equities benchmarks with gains of 7.8%. But these trends might not be readily apparent when reading the typical headlines generated by the financial news media.
For investors, these seemingly disparate factors represent a confluence of events that point to a single (and increasingly probable) outcome. Underlying market flows have already started to favor classic safe havens, and recent price breakouts in gold ETFs and gold mining stocks (which I have discussed in-depth) help to confirm the validity of a rising bullish trend in the broader precious metals space.
The prospect of lower interest rates has emerged as stock markets are trading at record highs and trends in private sector jobs data point toward decade lows. Ultimately, these divergences suggest investors might continue to adopt a more protective stance as a way of guarding against potential declines in the stock market.
Historically, gold tends to be a primary beneficiary during these types of market environments, so I wouldn’t be surprised to see extended outperformance (relative to the S&P 500) in the months ahead.
Richard Cox is a personal investor with more than two decades of experience in the financial markets. He is a syndicated writer, with works appearing on CNBC, NASDAQ, Economy Watch, Motley Fool, and Wired Magazine.
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