(Kitco News) - Precious metals are a top performing asset in 2016. Here is a quick snapshot of gold and silver performance versus other major asset classes around the globe year to date.
- Gold futures + 25%
- Silver futures + 39%
- S&P 500 Index + 6.72%
- 10-Year Treasury Yield + 1.60%
- 10-Year German Bond - 0.5%
- US dollar index -3.39%
- China's Shanghai Composite Index -13.4%
- Japan Nikkei Stock Average - 11.1%
- Europe Stoxx 50 - 7.7%
- Sao Paulo Bovespa (Brazil) + 34.3%
- Dax – Germany - 1.9%
- CAC 40 – France - 4.3%
Performance data through Sept. 2.
Question: What is behind the massive outperformance in gold and silver in 2016?
Uncertainty is the main driver for gold buyers this year, and that encompasses a great deal of macro-economic, monetary and political concerns. Here is a short list of factors that have unsettled global money managers worldwide in 2016.
- The shift to negative interest rate environment. It has been estimated that nearly 500 million people live in countries with negative interest rate policies, which represent nearly 25% of global GDP. Global central bankers have turned to the negative interest rate experiment out of desperation and a last resort effort to turbo-charge sluggish, and debt-heavy advanced economies. What will the repercussions be? No one really knows = Uncertainty.
- The US President Election. Recent polls show the presidential election race in the United States is tightening, with Clinton and Trump nearly neck and neck in some surveys. The stock market, economy and businesses do not like uncertainty. This is not the type of environment where businesses move forward with high levels of new investment in infrastructure, technology and hiring. Businesses hunker down, sit on cash and move into defensive positions amid uncertainty. Presidential election outcome and market impact: Uncertain.
- Will The Fed Hike Rates In 2016? The latest round of U.S. jobs data underperformed, which has derailed expectations that the September Fed meeting is "live" for an interest rate hike. At this point, market analysts and policy makers are pointing to the December meeting as the likely date –wait for it –for the one and only interest rate hike in 2016. Wrap your head around that. The only and only rate increase in 2016 –if it actually materializes.
The current fed funds rate has only been marginally lifted off the zero-bound level, with the December 2015 interest rate bump of .25 basis points.
December is a long way off in economic, political and market terms. A lot could happen. Don't bet on a December rate hike. Interest rate hike in 2016? Uncertain.
- Will The U.S. Slip Into Recession Before Monetary Policy Is Normalized? The odds are increasing that the answer to this question is yes, simply due to cycles and time. The current expansion cycle is old and long in the tooth. The average length of a U.S. expansion cycle is 69.5 months. The U.S. economy is currently in its 87th month of "expansion." What will the Fed do then? Negative rates, helicopter money, more quantitative easing? Uncertain
- Brexit. While the initial ramifications from the unexpected Brexit vote have been muted on the global financial markets. The true economic and market impact has yet to materialize as the long and drawn out exit procedures must be followed. Impact: Uncertain.
- Geopolitical Unknowns. These always loom large in our modern day society and could emerge from many points on the globe. Gold has proven time and time again to be a safe-haven amid military, political and economic duress. Geopolitics ahead: Uncertain.
Gold investors turn to the time honored investment vehicle as a traditional store of value and wealth. Physical gold buyers know and understand the owning the yellow metal has advantages over stocks and bonds. It has tangible value. You can own it and store it in your home. You can take it with you if you need to.
Uncertainty has been a great underlying fundamental support to the gold market in 2016, and that isn't going away anytime soon. How much higher could gold go? Uncertain. There's a lot of fodder ahead.
By Kira Brecht, Kitco.com