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  • Investment Outlook

    Tesla Flashes Red and Gold Marches Through a Big Test

    Jan van Eck, Chief Executive Officer
    July 30, 2020
     

    In recent weeks, several events stood out to us, and I wanted to highlight them here.

    First, gold passed the first of two technical tests that will signal how powerful this gold bull market will be.

    Gold is rising because of the gasoline the Federal Reserve (Fed) is throwing on the flames of our economy. It started with the reversal in January 2019, when the Fed started cutting interest rates instead of raising them. Gold’s breakout from its trading range happened in the summer of 2019, when our outlook became bullish on gold. Put another way, the Fed has lowered real interest rates, which is gold-bullish. (By contrast, I’ll note that China is recovering and its interest rates are actually rising.)

    But we’ve said that investors should care whether price action (“technicals”) are confirming this fundamental view.

    Test one was: Would gold break through the “resistance” of $1,800 per ounce, which held it back in 2011?

    Lo and behold, gold rallied past $1,800 in early July. And the steadiness of the rise through $1,800 is a major bullish sign that suggests that this gold bull market could last for years. The second test was whether gold can make all-time highs, which it has done in recent days, surpassing the previous high of around $1,920 reached in September 2011. Learn more in our updated Investment Case for Gold.

    Growth Froth is Worrying

    Since mid-April, our view has been that investors should be comfortable maintaining their strategic allocations to stocks and bonds because of stimulative government policies. It is understandable that growth has outperformed value for years and through the COVID-19 crisis, but I wonder if that outperformance will continue.

    It is worth noting that the Morningstar Wide Moat Focus Index, using proprietary valuation methodology, moved further to a value weighting in its end of June rebalance.

    Date Value Core Growth
    6/30/2020 50.7 30.3 19.0

    Source: Morningstar

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