As we approach 2020 with a news cycle full of political and economic instability, many retirement savers are wondering whether they should look for alternatives to the stock market.
There are many recent events that are causing uncertainty in global stock markets and pushing up the prices of gold and silver. Making sense of their potential effects can be tricky.
Let’s take a look at these events and then examine their possible impact on gold and silver prices, as well as whether you should consider placing some of your retirement money in these well-established assets in the coming year.
Impeachment, Elections, Oh My!
The House’s public hearings on impeaching President Trump are underway and some of the witness revelations have created some uncertainty in the current political environment.
A recent poll by ABC News and Ipsos found that seven in ten Americans think that Trump’s actions toward Ukraine were “wrong,” with a slight majority thinking he should be removed from office. At the same time a poll by Gallup found that Trump’s approval rose to 43 percent and disapproval dropped to 54 percent in the first two weeks of November.
Republican support for the president in Congress has not wavered. Not a single House Republican voted in favor of moving ahead with an impeachment inquiry. Senate Majority Leader Mitch McConnell has made it clear that he thinks the Senate will not remove the president from office, even if he is impeached by the House.
This division in the American public and the members of Congress will no doubt continue into the U.S. presidential election next year. On the Democratic side, the candidates continue to jostle over who can beat Trump. Some have already been forced to bow out of the race, like former Texas Rep. Beto O’Rourke, New York Mayor Bill de Blasio, and Washington Governor Jay Inslee.
The Democratic establishment is worried about the current crop of candidates, particularly those advocating for a major overhaul of the U.S. healthcare and economic system. Some apparently urged New York billionaire Michael Bloomberg to run; he just declared his candidacy. Former Massachusetts Governor Deval Patrick also joined the race late, creating even more confusion.
Middle East, U.S.-China Trade War
Then, there is the perennial instability in the Middle East, with the latest events involving the Trump administration’s decision to pull out of Syria and Russia’s move to take the United States’ place as the power broker in the region.
The current trade war with China has sent the stock market on a roller coaster ride for much of this year. Every time we hear about a breakdown in talks or China imposing new sanctions, the stock market plummets. The latest news is that the U.S. and China could be close to a phase-one trade agreement.
At the same time, former U.S. Secretary of State Henry Kissinger warned recently that the U.S. and China are headed for a new cold war because of the trade war and disputes over China’s approach to the protests in Hong Kong and claims over territories in the South China Sea.
Let’s not forget Europe. Great Britain continues to struggle to implement the publicly approved referendum to pull out of the EU. The effort, known as Brexit, brought down one prime minister, Theresa May, and brought to power one of the backers of Brexit, Boris Johnson. He unsuccessfully tried to suspend Parliament in order to forestall opposition to the Brexit implementing legislation.
And the euro, the EU’s main currency, hit a two and half year low against the U.S. dollar in mid-November with signs of an economic slowdown in the continent’s largest economy, Germany.
Global Volatility: Effect on Gold and Silver Prices
What does all this global economic and political volatility mean for you as you decide whether to shift your retirement funds from stocks to gold and silver?
Traditionally, during unstable times, people look to safer vehicles such as Treasury bonds and precious metals. Unfortunately, 10-year Treasury bond yields are at an abysmal 1.50 percent, well below the traditional yields of between 4 percent and 5 percent.
Forbes senior contributor Rob Isbitts expects 10-year Treasury bond yields to drop into negative territory. He noted that “an overwhelming number of bonds issued by governments in Europe, Asia and soon perhaps, the U.S., have negative yields.
What this means is that bonds are no longer an attractive alternative to high risk stocks in this era of instability. What’s left for nervous retirement savers? Isbitts judges that it’s precious metals, as this lack of alternatives will fuel investment in gold and silver and push the prices still higher.
“After all, the stock market has been a dud since early 2018. It has been volatile, but the net return of all of that excitement has been very little if any. So, it won’t take much of a rally in something like gold to make it a popular holding for a while,” he writes.
The price of gold has jumped 20 percent since the beginning of the year and has passed a six-year high. Harry Tchilinguirian of BNP Paribas predicts that it could reach $1,600 per ounce next year, up from $1,450 to $1,500 currently, particularly if the Federal Reserve cuts interest rates further and bond yields drop to zero or below.
Demand for gold “is likely to grow further with rising expectations of economic deceleration given the state of US-China trade tensions,” Tchilinguirian wrote in a note.
In addition, the price of silver is predicted to reach a three-year high next year, according to Peter Krauth, a resource specialist with Money Morning. He related that the price of silver has increased more than 17 percent since May and is expected to jump further in response to industrial demand for silver.
Given all of this political and economic volatility and their potential effects on the stock market, it might be a good time to consider investments that aren’t denominated in fiat currency. 2020 already seems poised for positive news on the prices of alternative assets. It’s worth keeping a close eye on the effects of current events on gold and silver prices, as well as what experts have to say.