Through the end of August, gold is up 19% for 2019 so far – its best year (by far) since 2010 – and we are about to enter gold’s best time of the year – the holiday season in various cultures, when gold jewelry gift giving is popular. Going back to 1975, when gold trading was legal in America, the entire growth in gold’s price came during the six months from September 1 through February 28. Gold averaged 1% per month price gains from September through February in the years 1975-2018, compared to zero net gains in the other six months, February to August, due primarily to jewelry fabrication for seasonal holidays.
This year, something dramatically new and different has pushed gold up during its historically flat months of May through August – a China/U.S. trade war and a “race to the bottom” in interest rates, featuring negative interest rates dominating Europe and Japan. With over $17 trillion in sovereign debt (mostly in Europe) offering below-zero interest, gold is suddenly becoming more attractive to savers and investors.
While central banks are devaluing their currencies, they are also increasing gold purchases this year, adding 374.1 metric tons in the first half of 2019. In the first quarter, gold buying was led by Russia and China, with Poland adding a massive new 100-ton purchase in the second quarter, the largest single gold purchase since 2009. A World Gold Council survey of central banks revealed that 54% of the respondents expected to increase their gold holdings over the next 12 months, as currency values continue to erode.
Gold and silver’s biggest price increases came after President Trump started threatening tariff increases on May 5. The stock market has fallen since then while precious metals have risen 20% during a nearly four-month escalation of the trade war with China over the late Spring and summer months of 2019:
Investment May 5 August 26 16-week gain
GOLD $1,270 $1,550 +22.05%
SILVER $14.65 $17.70 +20.82%
Dow Jones 26,505 25,800 (-2.66%)
S&P 500 2,945 2,866 (-2.68%)
Our trade war with China has dominated the headlines since May, but China has long taken advantage of America with high tariffs and illegal theft of intellectual property. China has also counterfeited rare U.S. coins for decades and has even shipped tens of millions of dollars’ worth of counterfeit circulating dimes and quarters and half dollars into the U.S. After previous Presidents mostly ignored this – as well as billions of dollars’ worth of product piracy and theft – it’s refreshing to see a President take action.