Recession fears have investors 'going to gold as a hedge,' prices are skyrocketing

Brian Sozzi
Editor-at-Large

Keep those inflammatory presidential trade tweets and promises of low interest rates from the Federal Reserve coming, says just about every gold investor out there on Wall Street.

Prices for the yellow metal have skyrocketed about 20% this year to more than $1,500 an ounce on fears escalating trade tensions with China will plunge the U.S. into a recession. The major breakout in prices came in June, and accelerated as the Fed shifted its stance in monetary policy to more dovish.

Gold is often seen as the go-to safe-haven trade in such an uncertain macroeconomic backdrop and when the Fed is cutting rates. Investors haven’t just rotated into physical gold, but also gold-backed ETFs and miners.

For instance, the SPDR Gold Shares ETF (GLD) has gained a cool 16% on the year. Gold mining titan Barrick Gold Corp. (GOLD) has notched an impressive 47% year-to-date ascent.

Most on Wall Street expect the rally to continue... and perhaps blow through the key $1,600 an ounce level.

“Investors are very worried about the economy and the future of the financial system and they are going to gold as a hedge,” VanEck gold portfolio manager Joe Foster said on Yahoo Finance’s The First Trade. Foster says both institutional and retail investors have both plowed into gold.

“It’s very possible [we blow by $1,600 an ounce]. Gold is establishing a new trend — I think it’s the beginning of a new bull market in gold,” adds Foster.

Deutsche Bank metals analyst Michael Hsueh thinks gold buying by major central banks during this bout of heightened macro risk is also likely to support higher gold prices.

“While speculative and retail investor demand are likely to dominate shorter-term flows, the stability of central bank demand should help to bias gold prices higher over longer timeframes,” Hsueh wrote in a recent note.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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