MarketWatch contributor lists 7 reasons why gold could overshadow equities.
The biggest stories for most investors in 2017 included Bitcoin’s vaunted year-end rally and the stock market. As noted by MarketWatch contributor Jeff Reeves, the scope of the rally in stocks was such that it seemed difficult not to post a profit.
However, despite their strong start this year, Reeves thinks that equities will be overshadowed by gold, listing 7 reasons why he believes 2018 will be the year of the yellow metal.
For starters, gold’s technical picture looks as strong as ever. The metal has mostly bounced back and forth between the $1,200-$1,250 range since September, suggesting that it is entering a pattern of higher lows, something Reeves finds extremely promising. He says the fact that gold briefly climbed to $1,350 an ounce last year, as well as the recent breach of the important $1,300 level, show that both the highs and the lows for the metal are improving.
The article points out that gold displayed strong momentum over the last months, gaining roughly 6% over a 6-month period. Even more noteworthy is that gold surged more than 5% in December while the S&P remained still for the most part.
This trend should continue as investors start to wonder whether the bull run in stocks is up and start looking into the next big thing in the new year. Aside from asset rotation, Reeves says gold demand should also be bolstered by India and China, two of the world’s biggest consumers of the metal. With Indian gold imports surging 67% in 2017 and Chinese demand for gold bars rising 40% in November year-on-year, physical buying in Asia in 2018 will continue to set new standards for demand.
These figures are contrasted with weak production throughout 2017, potentially leading to a supply glut in the near future. The issue of low-hanging fruit having been picked is coming to the front, with miners finding their endeavors riskier and riskier. Furthermore, Reeves states that cash-strapped miners having to close down less profitable sites along with tighter regulations in Indonesia and South Africa contribute to a concerning supply picture.
Reeves adds a weakening dollar, which has hit a three-month low, as another tailwind for gold in 2018. Things look even worse for the greenback when considering that the benchmark measure for the dollar shows an almost 10% decline in 2017.
To close his list, Reeves points to interest in cryptocurrencies as beneficial for gold. Contrary to the belief of some, investment in bitcoin and similar digital currencies will support gold since speculative investors will want to hedge their bets with a safe-haven asset. Data compiled by Goldman Sachs corroborates this, with the bank reporting no visible outflows from gold amid the cryptocurrency craze.