The WSJ article "Gold Falls Out of Favor as Risk Rally Continues into Spring" by Amrith Ramkumar details the fall in gold's popularity among investors by 4% since highs in February. Gold is often times considered a "haven" for investors since it is believed that the precious metal has a negative beta and moves in opposition to markets - making it a safe bet in risky times. Currently, however, the current market optimism and the drop in gold popularity is a signal that "rising confidence in the world economy" is pushing investors away. More specifically, this market optimism stems from a hopeful outlook that the US and China will reach an agreement and end the tariff debacle and also confidence from the Federal Reserve, claiming that they will not be raising interest rates any higher in 2019. As gold has taken a hit, nearly wiping out all of its returns from the beginning of the year, the flipside is that there has been a rally in the stock market, and other materials like copper and oil. Peter Hug, director of sales at Kitco Metals claims that people are "getting bored" with gold since it is like "watching paint dry." Although investors who had confidence that gold would finally rally above $1,350 troy oz. have lost this bet, I think this signal to the market it rather important in terms of the confidence and optimism that investors have right now. Earlier this semester, there was so much literature about a slowing economy and the stock market took quite the hit in December of 2018, yet "mounting confidence in US growth" which has lifted the dollar and T yields, paints a much rosier hue of the current economic outlook and seems to be impacting the way that investors are handling the risk/return trade off.
Link: https://www.wsj.com/articles/gold-falls-out-of-favor-as-risk-rally-continues-into-spring-11555416000
3 comments:
Hillary,
It is comforting to see investors and consumers alike are gaining more confidence in the economy. As you mentioned, there were many fears earlier on that we were heading to a recession, especially when the yield curve had inverted for a short period of time. However, with people moving away from gold and back into the market we can infer confidence is rising again. I am hopeful to see this practice continue.
This is an interesting article. I agree it is refreshing to hear that consumer confidence seems to be gaining as fewer people worry about an impending recession. After hearing about a possible recession for so long, I think people are tired of waiting for it to hit. It will be interesting what the final results of the US-China trade deal will be and how that will affect the respective economies. With countries like Germany also experiencing a slight downturn, I wonder if it is just a slight correction or if their economies are going to experience a recession and how that will affect us in the future.
This is super interesting to see. Like you said, people have a tendency to put money into Gold when the market turns because of its low correlation. To piggyback on what Duncan said, it is good to see that consumer confidence is rising again. I wonder where people will allocate money when we do have a correction? Do you think people will start to put money overseas and invest in other markets, like China or France when the US economy takes a turn?
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