It’s not a happy new year for investors ... unless you’re a gold bug.
Gold was one of the few things that was up on Monday while stock
markets around the world tanked due to renewed worries about an economic
slowdown in China and more tension in the Middle East.
The yellow metal rose nearly 2% to about $1,080 an ounce. Gold mining
stocks were rallying too.
Newmont (NEM) was up 3%, making it one of the top performers in the
S&P 500. In fact, Newmont was one of just 23 stocks in the index that
was up in late-morning trading Monday. (Most of the gainers were energy
companies, thanks to a spike in oil prices.)
And a major slump in China coupled with concerns about a potential
conflict between Iran and Saudi Arabia sounds pretty scary. "Today’s
surge in gold is mostly due to fear," said Ed Moy, a former director of
the U.S. Mint and chief strategist for Fortress Gold Group.
At that time, investors were worried about the health of the U.S.
market in the wake of a credit rating downgrade by Standard & Poor’s.
Moy does not think that gold will get anywhere close to 2011 levels
But he thinks gold might go as high as $1,200 to $1,300 an ounce by
the end of 2016.
The main reason? Concerns about a sluggish global economy aren’t going
away anytime soon.
There’s also the fact that gold has been down for so long, it may
finally have reached bottom.
"A small allocation to gold does make some sense. It has done so
poorly over the past few years. So there’s probably not a lot of
downside," said Bill Lynch, director of investments with Hinsdale
There are actually two good reasons why gold shouldn’t do well this
Expectations of more interest rate hikes from the Federal Reserve
should be a bad sign for gold. Higher rates would make bonds and
dividend stocks more attractive to investors than gold -- which yields
"Hard landing fears in China are legitimate. And what happens between
Saudi Arabia and Iran is a big unknown," said Jack Ablin, chief
investment officer with BMO Private Bank. "It’s possible gold could
outperform stocks this year because of the uncertainty."