Q4 2018 Started on a High Note for Gold

During the third quarter, gold’s price (GLD) fell ~5%, dipping below the psychologically important level of $1,200 per ounce it touched in August.

The strong US dollar (UUP) and the Fed’s rate hike expectations were the major drivers of the weakness in gold during the quarter. Even the emerging market (EEM) currency crisis led by Turkey couldn’t salvage gold’s safe-haven appeal. In fact, US Treasuries (TLT) drew a bid, leading to the strengthening of the US dollar.

While the third quarter was lackluster, the fourth quarter started on a high note for gold, which saw a gain of 2% in October alone despite the US Dollar Index gaining 2% in the same month.

Equity market volatility and the resulting investor fear restored gold’s safe-haven appeal to some extent in the period. During October, volatility (VIX) returned to US markets after a prolonged calm. At the slightest sound of uncertainty, equity markets dropped, underscoring investors’ fears about a looming US slowdown. Physical gold buying, as well as gold ETF buying, is making a comeback on gold’s safe-haven appeal.

In October, the S&P 500 Index (SPY) fell 6.9%, and the NASDAQ Composite Index (QQQ) fell 8.6%. The SPDR Gold Shares ETF (GLD), the world’s largest gold-backed ETF, led the inflows with 11.8 tons, while the iShares Gold Trust ETF (IAU) added 5.0 tons.

While gold prices have started gaining some traction, the third quarter wasn’t great for gold. In the next article, we’ll see how celebrated fund managers John Paulson and Ray Dalio altered their gold investments during the quarter.

For more on gold’s outlook, read Could Gold Be the Best Bet amid Increased Economic Uncertainty?