Should Buying Gold Be on Your Christmas List?

Investors are watching the gold market very closely for signs of a pump as the U.S. Federal Reserve and other major central banks may cut interest rates soon. So far gold is up 14% in 2019 and the 25-basis-point rate cut by the Fed has been a blessing to gold investors. Gold experts have predicted a rise to $1,600 in 2020.

Why the $1.6K an ounce prediction?
The Fed is looking forward to another round of interest rate cuts and though economists suggest that the Fed may be done with rate cuts for now, however, that may not be entirely correct. Market watchers have suggested that the current low-rate environment may actually help gold prices in climbing higher. Every time the Fed cuts rates, gold prices rally. Gold has always been a hedge for investors against bad times like geopolitical crisis and trade wars. It beats fiat currencies.

Bank of America Merrill Lynch (BoAML) believes that it will be a Goldilocks year for U.S. economic growth and inflation, which may reduce investor interest in gold. The bank is neutral on rates of gold and silver in 2020 and its average forecast is 1% over the current rate.

According to experts, the Fed’s monetary policy may have run its course and this may make it difficult for us to be bullish about gold.

What drives gold prices?
Negative interest rates around the world and the fed’s rate cuts were creating a favorable environment for gold prices to increase. However, firms like Standard Chartered believe that the rates may hold in 2020.

A potential slow-down may occur in 2021 as fears of recession are shifting further away. Though not in the immediate future, the economy seems poised to recover and increase yield on Treasury bonds.

Should you buy gold this Christmas?
Based on my analysis, it is best to buy during the holiday season as the Fed’s decision won’t be known until mid-January. Anything prior to that, especially with the current political atmosphere, may push the prices higher. The factors we discussed above may align themselves and support gold prices in the first quarter of 2020.

As long as inflation grows, we are on the right track with gold. Though there may be no further rate cuts, the market will take time to cool and until then, gold is the hedge. Rising prices may prompt further buying and that will be the best time to cool off and exit. It remains to be seen whether the prices bounce around in a higher range or continue higher.






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