As we head into 2020, it is worth looking at how gold has performed this year relative to other investments. Gold started the year off at $1,278 per troy ounce, and is now at about $1,510. This is about an 18 percent increase year to date. The DJIA has returned about 23 percent, and the S&P 500 has returned a stellar 29 percent. For those planning for retirement who invested in the stock market, it was a fantastic year. Bitcoin has risen 115 percent to eclipse them all. While gold has not been the best performer, it’s performance has been praiseworthy and much better than many analysts had expected.
What has propelled the gold price higher is stagnant growth in much of the world, including Europe, which has forced the hand of central banks to turn on the printing press to fuel more growth via quantitative easing. Quantitative easing has been tried before, and its results leave much to be desired, but the desperation of the central banks is palpable as Western nations are saturated with debts and their populations are aging.
Moreover, the UK’s departure – or rather its attempts at such – from the European Union, known as Brexit, has fueled concerns about the economic future of Europe. With the populist sentiment underpinning Brexit, there are con cerns about a spillover effect in other parts of Europe. In Spain, for example, there is growing support in Catalonia for independence and autonomy.
In the United States, Donald Trump has been in a catfight with the Federal Reserve, imploring the central bank to keep interest rates as low as possible. Due to concerns about the potential of a recession in the country, the central bank has lowered the Fed Funds Rate three times this year to a 1.5 to 1.75 benchmark interest rate. This is the rate at which banks and other depository institutions lend money to one another overnight, and it affects mortgage and consumer loans. By lowering interest rates, the central bank hopes to stimulate the economy. However, as interest rates go down and the supply of money goes up, the price of gold tends to go up. This is because the supply of gold is much more stable, growing between one and two percent a year.
The year 2020 will be exciting for investors. With lower interest rates and quantitative easing, gold will be looking especially attractive. Hopefully, for those investing in the stock market and planning for retirement, it will be another exceptional year.
Below is a short educational video for those planning for retirement who are interested in more traditional investments.