Gold had a great year in 2019. After beginning the year near the $1,280 per ounce level, the price ended it at approximately $1,520 per ounce, which represents a gain of nearly 20%. That’s a higher return than the FTSE 100 generated for the year.
Can the gold price keep rising in 2020? Some analysts believe it can. In fact, a number of experts believe it could hit $2,000.
$2,000 this year?
One expert who is bullish on gold is Fawad Razaqzada, technical analyst at City Index. Razaqzada believes that gold’s technical outlook remains strong given the breakout last summer. He expects looser monetary policy this year to push bond yields further into negative territory, boosting the appeal of gold, and says that a stock market correction could see gold’s price surge higher.
“If US stocks were to correct themselves in 2020, then this surely could lead to elevated levels of safe-haven demand for gold,” said Razaqzada. “As the US equity market bubble finally bursts, safe-haven demand could nudge gold past its 2011 peak of $1,920, before tagging the $2,000 psychological hurdle.”
And Razaqzada isn’t the only analyst who believes gold can reach $2,000 in 2020. For example, last year, David Roche, president and global strategist at London-based research firm Independent Strategy, told CNBC that gold could hit $2,000 this year on the back of “vilification of fiat currencies by central bankers.”
Meanwhile, a number of Wall Street analysts see it hitting $2,000 in the next few years. For example, Citigroup’s Aakash Doshi recently said that gold could potentially hit $2,000 an ounce “at some point in the next year or two,” while Daniel Ghali of TD Securities said: “Over the coming years as the likelihood of the unconventional policy becomes more of a reality, I could see a case for gold at $2,000.”
Time to load up on gold?
Should we all load up on gold, given these gold price forecasts that suggest it could have upside of more than 25%?
My view is that having a little bit of exposure to gold, as a diversification play, could be a sensible move. If economic uncertainty increases and stock markets take a hit, gold could potentially provide an element of portfolio protection.
That said, I wouldn’t want to have too much exposure (more than 5% of my portfolio) to the precious metal. The reason I say this is that gold generates no earnings or income. As Warren Buffett says, gold “doesn’t do anything but sit there and look at you.”
To my mind, a diversified portfolio of high-quality stocks that has the potential to generate both capital gains and dividends is a much safer long-term play than an investment in gold.
One huge advantage that stocks have over gold is that they can provide passive income through dividends. Build up a solid portfolio of high-quality dividend-paying businesses, and you could potentially retire on your dividends (tax-free if your stocks are in an ISA), without having to worry about selling a proportion of your investments every time you require income.
Combine this advantage with the long-term track record of the stock market (since 1984, the FTSE 100 has delivered a return of around 9% per year vs around 4% per year for gold) and you have an asset class that is far superior to gold, in my view.
All things considered, compared to gold, I see stocks as a far better long-term investment.
