Many economists have sounded alarm bells that the U.S. economy could see a significant downturn in the next 12-24 months. Whether one looked at weakening manufacturing data, the inverted bond yield curves, or the ongoing U.S.-China trade tensions, it seemed pretty clear that traditional safe havens like precious metals would rise in this bearish environment. As it turns out, however, the opposite has transpired. Prices for gold have fallen to a new 3-month low as the precious metal dipped down to the mid-1400s.
Gold futures slid to $1,457.10 per ounce, the lowest point seen since August. Prices peaked at $1,550.30/oz on September 4th as investors thought that gold’s momentum would continue this time well past its previous highs. While gold bulls clamored that a break into the $1,600’s and beyond was inevitable, prices for the precious metal ended up losing steam and have slowed petered out over the past couple of months.
As a traditional safe haven, gold’s rise has been directly correlated with the amount of fear in the marketplace. Over the past year in particular, people have been worrying that the U.S. market is sorely due for a reversal, ending what has been one of the longest bull runs in the nation’s history. For investors that are worried about the state of the market and the U.S. in general, there’s plenty of potential warning signs to be anxious about. As such, gold bulls have doubled down on their predictions that the next couple of years will see gold prices surge to historic heights, despite this recent dip.
“From a physical perspective, if you’re an investor from a medium to longer term perspective, you just stay with this market and if your holdings are under your percentage allocation that you were looking to apply to your portfolio from the perspective of gold, then you just add to the position at these levels because I think 2020 is going to be a very, very volatile year and I think it’s going to be very positive for the metals,” commented Peter Hug, trading director at Kitco Metals and one such gold optimist.
He added that this recent downturn in precious metals prices can also be due to some institutional investors choosing to sell now and lock in some of their profits, hence the downturn in gold prices.
Other’s aren’t as optimistic. Analysts at Morgan Stanley ended up dialing back on their previous gold estimates for the first half of 2020, especially since the prospects of a potential U.S.-China trade agreement seem higher. They predict gold prices to level out at $1,515/oz for the first half of 2020, but this could fall to a much lower $1,394/oz should tariffs get rolled back on trade progress.
Other precious metals have fallen as well. Silver has seen a similar decline since early September, how trading at $16.81/oz., while palladium ended up falling over 3% on Monday alone.
It’s anyone’s guess as to what will happen or when, but the general consensus still appears to be that sometime in 2020 or 2021 the U.S. will experience a contraction, but it’s likely to be a softer, milder reversal than a serious market crash.
