As of Thursday, gold is set for its longest stretch of weekly gains since 2006 after surging past the $2,000 mark amid the coronavirus pandemic, resulting recession, the prospect of more stimulus, and rising tensions between the U.S. and China.
The shiny yellow metal has risen nearly 34% so far this year, putting it on track for its largest annual gain in more than four decades.
“The gold rally shows few signs of abating,” said Howie Lee, an economist at Oversea-Chinese Banking Corp. “The weak dollar and continued fund inflows into precious metals ETFs continue to prop the market higher.”
“How high gold may eventually run to is anyone’s guess now,” Lee added, “but longer-term, I think we are witnessing a new structural regime for gold, where prices are unlikely to return to the low $1,000s even after the coronavirus abates.”
Piper Sandler senior technical research analyst Craig Johnson said, “Gold is now breaking out of about a nine-year base and has broken out to new highs.”
“I agree that gold hasn’t been among the more attractive areas to have put investments over the last say 10 or 15 years,” Johnson said. “But at this point in time,… I think you’ve got a play.”
While Johnson noted that gold is becoming a bit overbought, he said he’s “waiting for it to come back a little bit and then we’ll probably add to some of our positions in the gold names just to create some further diversification into the portfolio.”
One name Johnson likes now is Wheaton Precious Metals (NYSE: WPM).
“This is a stock that still remains in a very nice uptrend off of those March lows like a lot of other stocks, doesn’t necessarily look like it’s about to break down, and from our perspective, the relative strength has been nicely improving,” Johnson said.
“In fact, as I go through our entire work that we got where we basically break down the entire marketplace into relative strength rankings, the gold, mining [and] silver groups are all making 26-week relative strength new highs and absolute new highs inside of our work,” Johnson continued. “I think as a technician and investors, you can’t really ignore that. You’ve got to put at least the big toe in the water in some of these names if not a little bit more. So, we would be a buyer of WPM in here.”
Laffer Tengler Investments’ Nancy Tengler countered that gold could be losing its shine as a hedge against inflation.
“Historically, gold has not been a great hedge against inflation compared to equities,” Tengler said. “This can be a trade. Wait for a pullback and then think of it as a midterm trade because longer term, equities historically outperform.”
However, Tengler added that there’s a way to play the gold rally.
“If you want to play it through stocks, …you can buy a company like Freeport McMoRan (NYSE: FCX) that mines gold and copper,” Tengler said.
Freeport’s exposure to copper is a bonus for Tengler, given that copper “is a leading indicator on the economy and the metals.”
“We don’t think gold is signaling inflation,” Tengler added. “We think this is a safety play, but we also think that the metals are signaling economic recovery. China’s about 50% of copper consumption. We think this is bullish for the economy and we also think it’s bullish for stocks.”
Still, Tengler cautious, “I think we need a breather. We are still expecting to see some sort of correction and I think we’ll get one as the political calendar takes over. And then I think we go higher.”