Investors are getting a chance to see just how resilient the gold market is as one market strategist sees similarities this year to the 2016 rally.
Not only are gold prices up nearly 17% since the start of the year but the yellow metal is seeing its best gains in three years. December gold futures last traded at $1,495.80 an ounce, up 0.12% on the day.
In a report published earlier this week, Joe Foster, portfolio manager and strategist for the VanEck Gold and Precious Metals Strategy, said that with gold entering its second month of consolidation, some investors are wondering if the rally will fade in a similar fashion the way it did three years ago.
“There have been strong inflows to the bullion exchange traded products (ETPs), yet anecdotally, we have seen little flows into gold equity funds. For many, this move harkens back to the first half of 2016 when the gold price advanced $260,” he said. “However, the 2016 move wasn’t sustained, and gold and gold stocks pulled back and went nowhere for three years. Equity investors are now understandably cautious and reluctant to step in.”
Foster’s comments come as gold prices continue to hold critical support around $1,500 an ounce. Although Foster said that he can’t rule out lower prices in the near term, he remains optimistic that any correction will be in a small speed bump in long-term rally.
Despite some near-term headwinds, Foster said that there are significant differences between this year’s rally and the faded rally in 2016.
“The macro backdrop today is much more supportive than it was in 2016. Both the expansion and the general equity bull market are now the longest on record. Global growth is slowing materially. Real rates have been falling and are expected to continue falling for the foreseeable future,” he said. “Negative-yielding debt has reached an astronomical $15 trillion globally and is growing.”
Looking at the technical picture, Foster said that gold remains in an uptrend as long as prices hold above long-term support at $1,365 an ounce. However, he added that it appears the market might consolidate between $1,400 and $1,450.
“While we will only know the details in hindsight, the strong macro drivers in place suggest this correction will only be a bump in the road, not the end of the line,” he said. “Also, given gold’s 2019 performance, we will not be surprised if it continues to beat our expectations.”