Gold Outshines Stocks in 2017
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This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm Charlie Turner in New York. The markets have risen to record highs this year on the back of strong corporate earnings, but there's also been a rise in investor uncertainty and nervousness about several issues, and that's driven people to invest in gold. And The Wall Street Journal says gold is on track to outperform stocks for the first time since 2011. Joining us is Wall Street Journal reporter Ira Yosabashvili. Ira, is this a matter of investors going to a safe haven?
It is. It is, and gold isn't the only safe haven they've been going to. The Japanese yen, the Swiss franc have also risen, and that's because of an underlying unease that is present in the markets right now, even as the averages have made new highs this year.
Some numbers here. How much has gold risen this year versus the stock market, namely the S&P 500?
Why is gold poised to outperform stocks in 2017?
I think it was around 12%. That's what gold has risen. The S&P 500 has risen a couple of percentage points less. So they're basically neck and neck. But the fact that they are rising together is kind of unusual because gold tends to be a safe haven asset. And people buy stocks when they think that everything's fine. So it is a little bit unusual.
So the price of gold is, I think, as you wrote, about $1,288. I think it was down a little bit today, but yeah. Ira, what specifically are investors worried about?
Well, they're worried about many things. I would say two major ones that are coming up. As we hear every day now, we have upcoming debt ceiling negotiations next month. And that has roiled markets in the past. Fitch warned that the U.S. is in danger of losing its vaunted AAA rating. if we're not able to reach a compromise on that. So that's definitely on investors' minds. The second thing is that, like we said earlier, even though corporate earnings have been good this season, investors are concerned about this kind of uneven U.S. data that hasn't evened out, really, because we have strong unemployment month after month. Other metrics are showing things like manufacturing is falling, auto sales are slipping.
So there's this kind of dichotomy that worries investors, like why can't everything go up?
Are investors treating gold as a safe-haven asset and what other assets are rising?
Why can't everything be good?
I'm speaking with Ira Yosabashvili of The Wall Street Journal, and you're listening to Your Money Matters. Thanks for listening, everyone. Ira, is the fact that the stock market hasn't had a big pullback in a long time also worrying investors that when a pullback does come, it could be a big one?
You bet. It's been 19 months, counting since January 2016, since we've had some kind of significant pullback. Some people say that that's no big deal, but other people, other investors are thinking that when a pullback does come, the positioning is so one-sided that it could be particularly sharp and deep, and that is worrying people.
You also write, Ira, that speculative interest in gold has become more positive in recent weeks. Net bets by hedge funds and other speculative investors on a higher gold price stood at more than 179,000 contracts for the previous week, and that's the highest in several months, according to the Commodities Futures Trading Commission data.
Right. That's one indicator that investors and reporters use to see the bullishness or bearishness of a market. Basically, as we write in the piece, one reason for that is with the uneven U.S. data. And with the chances falling that the White House will be able to pass fiscally stimulative legislation anytime soon, investors are less confident that the Fed will be able to raise interest rates a third time this year. And that's good for gold because gold doesn't pay a dividend. And when rates stay near their lows, it becomes an attractive investment as opposed to when rates rise.
As you've said, this is the first time that gold has outgained stocks in six years. Is this unusual in a year that stocks are rising? Doesn't this usually happen when stocks are slumping?
It is unusual, and I think that speaks to the unease that investors feel.
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