Both stocks and bonds have faltered to start the year, with the S&P 500 down approximately 8% year to date and the Bloomberg Aggregate Bond Index down about 4%. However, this tough environment for traditional asset classes has given gold, an asset many investors have forgotten about over the past decade, some time to shine.
As shown in the LPL Chart of the Day, the price of gold is not only up 3.8% since the start of the year, but just broke out to its highest level since June 2021 on Thursday. So is this move for real, and will gold continue to benefit investors’ portfolios?
“Gold has been a frustrating trade over the past year or so,” said LPL Financial Technical Market Strategist Scott Brown. “But we think the most recent breakout has a strong chance of turning into a more durable rally because of the steady base that has been built over the past six months.”
Going forward, we see the November highs near $1,875/oz. as important support to hold following the breakout, but believe it isn’t unreasonable to expect the yellow metal to test its all-time highs near $2,000/oz. at some point in 2022. Certainly gold has benefited not just from the poor returns in equities and fixed income, but also headlines about a possible Russian invasion of Ukraine. However, it has also powered through a dramatic rise in real (inflation adjusted) interest rates since the start of the year, something many investors expected to be a headwind as the market looks ahead to the Federal Reserve raising interest rates. While trading off headlines is never recommended, we believe the trend in gold and commodities more broadly suggests it may deserve a position in suitable investors’ tactical portfolios.
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