Gold has joined U.S. Treasuries as a favored safe haven asset as the U.S.-China trade war intensifies, fears of a global recession grow and a no-deal Brexit threatens. Whether its rally will continue will likely depend those factors and the direction of global interest rates.
Gold futures ended Friday near a six-year high at $1,508 per ounce, capping a 3.5% gain for the week, the biggest weekly gain since June, even though it has inched lower for the day.
“Gold seems to be that place to go,” said John LaForge, head of real asset strategy for Wells Fargo Investment Institute. “There are very few safe haven assets” and “the main driver now is the negative yields of bonds.”
LaForge explained that the “long-term knock on gold” has been the cost to hold or store it but negative yields in European and Japan and low yields in the U.S. eliminates or reduces that cost.
Gold is often considered a hedge against rising inflation but lately it has rallied in an environment where inflation is low or deflation dominates.
“Gold is the chameleon of the asset world,” said LaForge.
He doesn’t expect gold will gain much more from here without a recession and currently favors silver and palladium over gold because they haven’t rallied as much. Platinum, which traditionally trades at a premium to gold, is now trading at a 50% discount to gold and silver is trading at close to a 90% discount, well above the historical 50-60% discount.
“As gold gets pricier and pricier, look around for alternatives,” said LaForge.