Softness In Gold Just A Blip, Buy These 4 Stocks Instead
Zacks Investment Research | Feb 28, 2019 08:50PM ET
Gold prices rose to a 10-month high on Feb 19 on the back of concerns related to global economic slowdown and weakness in U.S. dollar. However, gold prices have wobbled since then, as has the U.S. dollar. As it stands, gold is priced at $1,317 an ounce after an abrupt ending to President Trump and North Korea’s Kim Jong-un summit in Vietnam sparked a safe-haven buying spree.
Though volatile, investors speculate that the yellow metal will witness a decline in value in the near term. However, such weakness, if any, is only momentary as global economic fluctuations and inflated equity valuations are likely to boost gains for gold in the long run. It is therefore advisable to invest in gold at this point.
Global Outlook for Gold in 2019 Remains Positive
The impacts of global economic and political dynamics over the past two years are largely expected to be felt in 2019. There has been an increase in the adoption of protectionist trade and economic policies by major economies across the globe. Needless to say, such practices contribute to an increase in volatility in the markets.
On Jan 21, the International Monetary Fund (IMF) reduced its global economic growth forecasts 2019 to 3.5% from 3.7% in October. Likewise, global growth projection for 2020 was reduced to 3.6% from 3.7% in October, marking the second reduction in the last three months.
On Feb 6, the European Commission lowered its 2019 growth projection for the 19-member Eurozone from 1.9% in November to 1.3%. Moreover, both Germany and Italy, the two largest economies of the Eurozone, are likely to face several headwinds in 2019.
Further, equity valuations continue to remain high across the world. Such developments point toward an increased likelihood of a world-wide recession. Therefore, there will be a surge in demand for gold in 2019 as a hedge against global financial risks.
Fed’s Slow Rate Hike Approach to Benefit Gold
Experts are of the view that the yellow metal is likely to face severe headwinds from higher interest rates and strength in the greenback. However, the Fed has indicated a more controlled approach toward hiking interest rates this year, which means that gold will surge in the long run.
During an appearance at the Economic Club of Washington, D.C. in January, Powell confirmed that the central bank won’t be hasty in hiking rates this year. Moreover, minutes from the Federal Open Market Committee’s meeting held in January were released on Wednesday.
Minutes of the meeting showed that officials from the Fed remained divided on the need to hike interest rates. A group of officials argued that a hike in interest rates would only be necessary if inflation levels turned out to be higher than the initial baseline forecast.
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Market watchers widely expect that the Fed would hold interest steady in its next meeting in March. Per the Zacks Investment Research
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