Note: This is just one in a series of articles talking about my top picks for 2020. I encourage you to check out my other top picks under the "Trade Ideas" tab and look for the "Top ETF Picks For 2020" heading!
There are any number of ways to make the bull case for gold and gold miners right now.
- An economic slowdown will result in a rush to safe haven assets.
- Gold has strongly outperformed stocks following yield curve inversions.
- Miners are still undervalued relative to the price of gold.
- $400 billion of Fed money printing can’t go on forever without consequence.
My original call for gold earlier in December was that it would threaten to move back to the $1350 level following a strong Q3 GDP reading and a better than expected November jobs report. The logic was that those numbers would drive investors towards risk assets and away from Treasuries and gold. Once it tested that level, it would make a run towards $1700.
The move back to $1350 looks like it's not going to happen. It only ended up dipping as far as the $1450 and looks primed to make it's run at $1700 right now. The rally in gold has been made all the more impressive by the fact that other defensive assets, such as Treasuries and defensive dividend payers, have been moving in the other direction. Other precious metals look to make similar moves to the upside.
Why gold miners over physical gold? It’s really a matter of risk exposure.
Gold miners tend to be around three times as volatile as the price of gold, which you can see pretty clearly in the chart above. If gold gets to the $1700 level, gold miners should be able to post returns in the 20-30% range.
The real wild card in the short-term at least will be how the political situation in Iran plays out. Oil, silver, gold and Treasuries all rallied strongly on the news of the assassination of Islamic Revolutionary Guard Corps commander Qassem Soleimani with Iran promising swift and sharp retaliation. The if, when and to what degree of Iranian retaliation remains to be seen, but if this leads to a protracted standoff and/or campaign of aggression, it's easy to see how a $1700 price target could be low.
Even if the political tensions are brief, the pieces are in place for a strong 2020 rally here.
If you liked this article, please click the LIKE button or share it on Twitter, Facebook, etc. using the buttons below.
Feel free to leave any comments, questions, or thoughts on the ideas presented here (and sign-up if you haven't already).
Follow me and receive periodic notifications when I post here by clicking the FOLLOW button at the top of the page!