The spot price of gold gained significant momentum this week as the U.S. Federal Reserve indicated that it would pause its rate tightening path and review conditions in the summer. This is a sharp reversal compared to early-to-mid 2018, when the strength of the US economy was being touted by the Federal Reserve. The reversal comes on the heels of the global stock market selloff in late 2018, which saw some of the worst volatility since the financial crisis.
Gold equities have been big beneficiaries in late 2018 and early 2019. Yamana Gold (TSX:YRI)(NYSE:AUY), a Toronto-based gold miner with operations in North and South America, has seen its stock climb 18.4% over the past three months as of close on January 30. The stock is up 14% in 2019 so far.
Markets have roared out of the gate, but the positive movements during this rally is a very promising sign for the yellow metal going forward.
The U.S. and other developed nations are contending with economic headwinds this year in the form of rising trade tensions and slowing growth. Earnings growth is set to slow dramatically in comparison to 2018 as the benefits of U.S. tax reform wear off.
If worsening fundamentals lead to trouble in the markets, the Fed could potentially hold off on any rate increases in 2019. This outlook would be extremely bullish for gold. For this reason, investors should hold on to gold equities like Yamana and others as we head into February.
