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As US Debt Grows and the Dollar Peaks, is Now the Time for Gold?

Feb 06, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions
Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Investors may want to consider holding gold in their portfolios in 2019 and 2020 as a suite of factors combine to form a bullish outlook for the gold spot price, according to Bloomberg. The peaking value of the US dollar, a high US Debt to GDP ratio, a US presidential election cycle that inches closer by the day, and rising levels of Gold ETF holdings all aid a 2-3-year bullish investment thesis for gold.
     
  • Below, we provide a 10-year chart of the gold spot price per ounce compared to total gold ETF inflows.

 

Source: Bloomberg
 

  •  From its 2018 low of USD$1,188.60/ounce of gold on October 8th, 2018, gold prices have rallied 11% to USD$1,319.20/ounce as of yesterday’s close. Bullish factors outlined above and described in more detail below may continue to drive gold prices higher and push the precious metal into a bull market.
     
  • Gold’s 180-day volatility measure is currently at the lowest level since 1999, which could add additional fuel to a gold rally.
     
  • Total known gold ETF holdings reached roughly 72.4mm ounces yesterday, the highest level in 6 years. Historically, gold ETF holdings and gold prices are highly correlated.  
     
  • Rising levels of total US debt relative to the US nominal GDP also aid a bullish investment thesis in gold. We chart both of these data points below.

 

Source: Bloomberg
 

  • As can be seen in the chart above, the US debt to GDP ratio currently sits at 104.15%. US debt to GDP ratio was one of the major inflection points of the Great Recession, which eventually sent the price of gold soaring to a high of USD1,806.90 in 2011 -- as comparison, the US debt to GDP ratio that preceded the Great Recession was just 63%.  
     
  • Since April 2013, the trade-weighted value of the US dollar has appreciated 27% compared to declines in the gold price per ounce of 13% in the same period. If the extended rally of the US dollar comes to an end in 2019, gold prices should be one of the primary beneficiaries.  
     
  • Finally, with each passing day the US inches closer to a presidential election cycle. Broad uncertainty that will likely result from US presidential elections may cause investors to flee towards safe-haven assets like gold, placing upward pressure on the price of the precious metal.

 

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.
We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

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