3 reasons why the gold rally is the real deal
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Gold prices peaked at $1,900 per ounce in September 2011. It was the end of a spectacular, decade-long bull market, during which the precious metal’s value increased a phenomenal 645 percent.
Since then, gold has struggled to regain momentum as an ever-climbing stock market has drawn more and more affection from investors. But after posting three straight years of losses, it looks ready to shake off this trend.
Not only is the metal trading at seven-month highs, it’s also on course for its longest winning streak since the glory days of 2011. What’s more, it’s broken clean through its 200-day moving average, a key indicator of growth.
In a recent report, HSBC suggests that we could be in the early stages of a new gold bull market, one that will “probably” usher the yellow metal back up to at least $1,500. This “forthcoming market,” says the bank, “has the potential eventually to exceed the speculative frenzy seen in 2011.”
Bold claims indeed, but there are signs that this gold rally is “stickier” than previous ones.
Stocks Are Making Investors Nervous
Historically, gold has had a very low correlation with stocks, meaning that in times of equity pullbacks, the metal has tended to hold its value well.
We’re seeing this unfold right now. While S&P 500 Index stocks have slumped nearly 10 percent so far this year, gold is shining bright at 12.7 percent. Even normally reliable tech stocks, including Netflix, Facebook and Amazon, have disappointed in 2016 so far.
In addition, the number of companies trimming or altogether suspending dividends surpassed 2008 levels last year, according to Bloomberg. Nearly 100 more dividends were cut in 2015 than in 2008, suggesting further trouble could be brewing. Goldman Sachs reports that in the last three months alone, at least 20 oil companies have adjusted payouts down as crude prices continue to drag.
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