Global uncertainty made gold a holiday winner for investors seeking a relatively safe haven. U.S. stocks just logged their worst year since 2008—their worst December since 1931—as fears over global trade, ballooning debt, the end of accommodative central bank policy and a U.S. government shutdown unsettled investors. Against this backdrop, the price of gold rallied late in 2018, reversing a trend of negative returns and weak investor demand that prevailed for most of the year.
The yellow metal, after all, has historically had a strong negative correlation with the market. I’m pleased to report that this inverse relationship held firm in 2018, proving again that investors continue to see gold as a valuable asset in times of financial instability. As you can see in the charts below, gold beat the S&P 500 Index for the month of December, the fourth quarter and the year.
With stocks down, gold’s outperformance shouldn’t come as such a shock to most readers.
What might surprise you is that the precious metal has also beaten the market for the century, 345.39 percent versus 70.62 percent, since December 31, 1999.
This tells me that, even though gold is still down from its 2011 peak, investors continue to value it as an attractive store of value.
Strong Gold Investment on Heightened Stock Volatility
Indeed, gold bulls added substantial positions to ETFs backed by bullion in December as the metal headed for its biggest monthly advance in two years. Gold-backed ETF holdings surged by more than 100 tons between October and December, helping to boost prices even further. During last Thursday’s trading session, ETFs bought 662,080 troy ounces of gold, the biggest one-day increase in at least 12 months, according to Bloomberg.
Quincy Krosby, chief market strategist at Prudential Financial, explains why this buying is no fluke. Speaking to Bloomberg, she said that “the market is questioning whether the [Federal Reserve] is making a policy mistake, and that could not only lead to slower growth, but perhaps to a recession.” Krosby went on to say that when you see this heavy selling in equities, “it’s indicative of fear, and gold [historically] becomes [favored as a relatively] safe-haven allocation.”
Gold Miners Ended the Year on a High Note
It wasn’t just bullion that had a good quarter. Precious metal miners, as measured by the FTSE Gold Mines Index, gained a remarkable 15.85 percent in the three months ended December 31. Among the leaders in 2018 were Nevsun Resources, up 106 percent for the 12-month period; Kirkland Lake Gold (NYSE:KL), up 81 percent; SSR Mining (NASDAQ:SSRM), up 45 percent; and North American Palladium (OTCPK:PALDF), up 38 percent.
I believe now might be a good time to increase your exposure to the gold market. As always, I recommend a 10 percent portfolio allocation to the yellow metal – with 5 percent in high quality gold stocks and mutual funds and the other 5 percent in bullion and 24 karat gold jewelry.
The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The FTSE Gold Mines Index encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.
Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of 9/30/2018: Nevsun Resources Ltd., SSR Mining Inc., Kirkland Lake Gold.
Disclosure: I am/we are long NSU, SSRM, KL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.