Gold was one of the few investments heading higher Monday as worries about the coronavirus outbreak led to a steep market slide. Gold is now up more than 20% in the past year, and trading near $1,600 an ounce, its highest level since 2013. Other precious metals, such as silver and platinum, have rallied too. Meanwhile, the Dow was down nearly 350 points in midday trading.
Some experts wonder if gold could top $2,000 in the not-too-distant future. Gold last hit an all-time high of just above $1,900 in 2011 in the midst of the European debt crisis.
Gold and gold miners often do well during times when investors are afraid.
Case in point: miner Newmont (NEM) was one of the few stocks in the S&P 500 that was trading higher Monday. In fact, gold stocks have been a good investment for some time. The VanEck Vectors Gold Miners ETF (GDX) is up nearly 40% in the past year.
The CNN Business Fear & Greed Index, which looks at seven measures of market sentiment, has plunged in the past week and is now not far from showing levels of fear. The index was in Extreme Greed territory just a week ago.
“There are a lot of things that could go wrong for the stock market and the economic impact of a China slowdown from the coronavirus could be felt globally,” said David Beahm, president and CEO of Blanchard & Company.
But gold had been doing well even before most people had ever heard of the coronavirus. Why?
Three interest rate cuts by the Federal Reserve last year helped to weaken the US dollar. That’s made gold more attractive than the greenback and other paper currencies, especially since rates are negative in parts of Europe and Japan.
Gold isn’t the only commodity that has benefited from worries about a slumping dollar and low interest rates. Silver, platinum and palladium prices have all soared as well in the past year.
This rally makes perfect sense given that interest rates are so low and the dollar is weakening. So how much exposure should a long-term investor have to precious metals in a retirement portfolio?
“A 5% to 10% allocation in gold and gold stocks makes sense,” says Ralph Aldis, a portfolio manager with US Global Investors. “This is the nascent start of a gold rally.”
Aldis said gold should continue to climb — and not just because average investors are growing nervous and seeking it out as a safe haven. Even big global central banks are starting to hoard gold as if they were Scrooge McDuck.
]According to figures from the World Gold Council, central bank gold purchases rose 12% in the first three quarters of 2019 from the same period in 2018. Central banks added 547.5 metric tons of gold on a net basis.
Investors are nervous about a litany of factors beyond coronavirus fears, Aldis said. Loose monetary policy around the world is creating an unhealthy environment for stocks — especially since corporate profits steadily dropped last year.
“The Fed and other central banks have been pouring money into the market. With money flow driving stocks instead of earnings, that makes people more jittery,” Aldis said.
Blanchard’s Beahm added that worries about more tension in the Middle East haven’t gone away either.
He noted that the broader stock market could become increasingly volatile this year due to jitters about the 2020 presidential election. Beahm argues that investors should have between 10% and 15% of their portfolio in metals.
“This year will be another one of double digit percentage growth for gold. It could hit new all-time highs and top $2,000 — if not this year then sometime soon on the horizon,” Beahm said.
depend on federal assistance.
The Supreme Court issued an order Monday, Jan 27th allowing the Trump administration to begin enforcing new limits on immigrants who are considered likely to become overly dependent on government benefit programs.
The court voted 5-4. Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan said they would have left a lower court ruling in place that blocked enforcement while a legal challenge works its way through the courts.
The Department of Homeland Security announced in August that it would expand the definition of “public charge,” to be applied to people whose immigration to the United States could be denied because of a concern that they would primarily depend on the government for their income.
In the past, that was largely based on an assessment that an immigrant would be dependent upon cash benefits. But the Trump administration proposed to broaden the definition to include noncash benefits, such as Medicaid, supplemental nutrition and federal housing assistance.
Anyone who would be likely to require that broader range of help for more than 12 months in any three-year period would be swept into the expanded definition.
But in response to a lawsuit filed by New York, Connecticut, Vermont, New York City and immigrant aid groups, a federal judge in New York imposed a nationwide injunction, blocking the government from enforcing the broader rule. Congress never meant to consider the kind of time limit the government proposed, the judge said, and the test has always been whether an immigrant would become primarily dependent on cash benefits.
The government has long had authority to block immigrants who were likely to become public charges, but the term has never been formally defined. The DHS proposed to fill that void, adding noncash benefits and such factors as age, financial resources, employment history, education and health.
The acting deputy secretary of the DHS, Ken Cuccinelli, said the proposed rules would reinforce “the ideals of self-sufficiency and personal responsibility, ensuring that immigrants are able to support themselves and become successful here in America.”
Two federal appeals courts — the 9th Circuit in the West and the 4th Circuit in the Mid-Atlantic — declined to block the new rule. They noted that the law allows designating someone as inadmissible if “in the opinion of” the secretary of Homeland Security, that person would be “likely at any time to become a public charge,” which the courts said gives the government broad authority.
The Trump administration urged the Supreme Court to lift the nationwide injunction imposed by the New York trial judge, given that two appeals courts have come to the opposite conclusion. Justices Neil Gorsuch and Clarence Thomas said Monday that district court judges have been issuing nationwide injunctions much more often.
They called on their colleagues to review the practice, which they said has spread “chaos for the litigants, the government, the courts, and all those affected by these conflicting decisions.”
But the challengers of the public charge rule urged the justices to keep the stay in place.
They said lifting it now, while the legal battle is still being waged, “would inject confusion and uncertainty” to the immigration system and could deter millions of noncitizens from applying for public benefits.