Best year for gold since 2010

Investors are continuing to seek safety in gold with 2020 being the best year for the asset class in a decade, up 22.4% since the start of the year, according to Bank of America (BofA).

The latest BofA data found gold was the best-performing asset class beating out the S&P500 (10.6%), US Treasuries (7.4%), global investment grade bonds (6.8%), MSCI emerging markets (5.8%), global high yield (3.9%), and cash (0.5%).

Last week, the asset class experienced $800 million in inflows globally with 5% of global fund managers believing long gold was the most crowded trades. Another 65% believed long US tech was crowded followed by short banks (11%), long corporate bonds (9%), and long bitcoin (4%).

Asset class quilt of total returns

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Source: BofA global investment strategy; YTD

Speaking on a webinar on Thursday, VanEck portfolio manager and gold strategist, Joe Foster said gold would continue to be in demand next year as uncertainty and volatility would continue until the COVID-19 vaccine reached an effective population. Foster said he thought this would happen, at the earliest, at the end of 2021.

“With central banks distributing trillions of dollars of quantitative easing and stimulate their economies there can be a few unintended consequences such as a debt bubble and dislocation in the market,” he said.

“All that liquidity is creating a high level of risk that could drive gold.

“We are living in times of heighten risk that favours gold as an investment vehicle and I can’t see those risks abating anytime soon. We will continue to face similar levels of risk and that can drive the gold market higher.”

Gold, Foster said, was driven by investment demand and was a safe haven to protect portfolios in times of financial stress. Comparing today’s market with every bull market going back to the 1970s, Foster said in terms of price action the current market was similar to the 2008 market but fundamentally it was similar to 2001.

“If you look at how gold performed after the Global Financial Crisis and compare it to the current market to post pandemic crisis market, you can get much higher gold prices at over $3,000 per ounce over the next three to five years,” he said.

Foster also said that currently gold stocks were undervalued, trading at eight times cashflow when usually it traded at 11 times. He said there was no reason for the asset class to be undervalued as he had never seen the industry as healthy as it was today.

He noted that the most bullish scenario for gold was if the US Senate went to the Democrats, meaning a Democrat party in power and a Democratic house.

“The fiscal policy from a Democratic government will likely mean higher taxes and weaker economic growth which will create more risk to the financial system,” he said.

According to FE Analytics, funds within the Australian Core Strategies universe focused on gold have recovered losses from the global sell-off in March, induced by the COVID-19 pandemic.

The five fund returns ranged from 31.49% to 19.55%.

The top performing fund was BetaShares Global Gold Miners ETF Currency Hedged (31.49%), followed by Select Baker Steel Gold Institutional (30.59%), Select Baker Steel Gold (30.15%), VanEck Vectors Gold Miners ETF (28.01%), Perth Mint Gold (22.33%), and BetaShares Gold Bullion ETF (19.55%).

Performance of gold funds since the start of 2020 to 31 October 2020

Source: FE Analytics

Over the longer-term, the Select Baker Steel Gold fund returned 243.29% over the five years to 31 October 2020.

This was followed by the VanEck fund at 162.21%, the Perth Mint fund at 66.11% and the BetaShares Gold Bullion ETF at 51.62%.

Performance of gold funds over the five years to 31 October 2020

Source: FE Analytics