Earlier this month, amid rampant trade optimism that pushed 10-year US yields to within spitting distance of 2%, gold suffered its biggest weekly loss since the election.
Fast forward three weeks, and that 3.7% plunge ended up holding for the full month, although Friday saw the yellow metal register a decent gain amid broad risk aversion tied to trade uncertainty.
Depending on how things shake out, this will either be one of the worst months for gold in three years, or the worst.
It masks an otherwise stellar year. Gold is up more than 14% in 2019, its best year in nine, as the “lower for longer” mantra from central banks appeared to morph into “lower forever”, when policymakers the world over were effectively forced to pivot back to accommodation as growth decelerated and inflation expectations plunged. Ironically, demand from central banks has been another factor supporting gold.
But the outlook for carefully-polished paperweights has become less sparkly of late, as the Fed, the RBA, RBNZ and the BOK (among others) have exhibited a collective desire to stop cutting rates in hopes that the easing already delivered will be sufficient to resurrect growth.
In addition, assumed tariff rollbacks associated with the elusive “Phase One” trade deal between the world’s two largest economies triggered a pro-cyclical rotation in early November, when bonds tumbled and consensual “slow-flation” trades within equities were unwound.
Gold is something of a casualty in all of that, even though the last three weeks have seen subdued price movements.
All is most assuredly not lost after one bad month, though. After all, central banks have plunged back down the rabbit hole and policy rates are at record lows across the globe. Any yield rise from here would likely be led by breakevens, not reals, and in any case, we’ve learned that rising real yields can be bullish for gold if the pain for risk assets from tighter policy ends up catalyzing a flight to safety.
“In theory, savings should equal investment, but due to declining capex and a rise in precautionary cash balances, a savings surplus is beginning to develop that is supporting gold prices”, Goldman writes, in their year-ahead commodities outlook. “Combined with CB gold purchases related to de-dollarization, we maintain our bullish gold target of $1600/toz despite a potential easing in policy uncertainty”, the bank said last week.
At least one “person” is bullish. On Wednesday, Bloomberg flagged $1.75 million in block trades betting on a spike to $4,000 in June of 2021.