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(Kitco News) –
While some market analysts are predicting a decline in the S&P 500 next month, gold may be telling investors that a rally for both equities and the yellow metal could be coming instead, according to Ben Emons, head of fixed income at NewEdge Wealth.
“Normally, you think of gold like a hedge against inflation or uncertainty, and I think both still play,” he said during a recent appearance on CNBC’s ‘Fast Money.’ “I think that’s one reason why gold is up. Yields are down, the dollar’s weaker, that’s the macro story for gold.”
But Emons said seasonal factors are also playing a role, as equities enjoyed a very strong November, and he believes gold prices indicate continued gains for stocks in December as well.
“Gold is an interesting pattern here, too,” he said. “It’s actually done even better than stocks in December, specifically in years when the Fed is either easing or going towards an easing bias, so, I think we’re in this stage here; this is why I think coming from the risk-on part of the story, gold appreciates in value when there’s uncertainty, it appreciates when there’s risk on when there’s [an expectation] of easing of Fed policy.”
Emons cited gold’s December performance relative to stocks since 2013 and said he believes that if the S&P also rallies in November, it leads to an even better outcome, though he acknowledged that this represents a limited timeframe from which to draw conclusions.
“But it is interesting to note that since that time, it’s been very consistent every December, pretty strong performance for gold, especially when there is a rally in the stock market in November,” he said. “What’s also interesting, [is that] in September, gold tends to get sold off every single year. I think that’s what investors are maybe doing. It gets sold off in September, and we visit it again in November/December, so I think the seasonality plays a role.”
Emons was asked if he believes gold is indicating that deflation is actually occurring right now, and that inflation coming down sharply is a good thing for the markets.
“It is,” he said. “If you listen to [Fed governor Waller’s speech from Tuesday], who was kind of extraordinary in his comments, he really started confirming that the Fed is moving towards, that we have descending inflation, so the real rate is high, positive, and they could lower that nominal rate.”
Emons said this should help push gold prices higher in the near term. “I think that gives gold a bid because, ultimately, that’s the true story of the gold rallies in the past,” he said. “The dollar goes up when there’s uncertainty, and a strong economy, similarly for gold. There’s uncertainty next year, an election; we don’t know what’s going to happen. We may get a recession, maybe not. So, lots of uncertainty. That is probably part of the reality of why gold is up.”
“And gold rallies when there’s this risk-on feel in the markets, and that’s really when interest rates are declining,” Emons said. “I think this gives gold a really good push for the breakout […] you’re going to break out to the upside.”
Spot gold is down 0.39% on the session but up 2.63% on the monthly chart. It last traded at $2,036.43 an ounce at the time of writing.
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