Gold prices continue to edge higher. It’s a phenomenon I expect could persist through 2020 as investor concerns over key geopolitical and macroeconomic issues are likely to persist.
It’s the tension over the unfortunate coronavirus outbreak, and its subsequent global spread that’s driving gold right now. The safe-haven metal just hit fresh seven-year tops above $1,610 per ounce. A run of troubled updates from some of the planet’s biggest companies have illustrated the impact that the illness is having on the global economy.
Shipping giant Maersk said that it has cancelled scores of trips for its container vessels, a reflection of weak Chinese factory activity. Airline Qantas warned on profits as it cancelled all flights to mainland China. And Apple cautioned the market about sagging sales of its iPhone because of supply chain difficulties and shuttered stores in its key Chinese marketplace.
Those negative updates were all issued in the space of a couple of days this week. And they are just a taster of what’s been hitting investor sentiment more recently. The number of alarming warnings is likely to continue gaining momentum as global businesses steadily absorb the impact of the coronavirus tragedy on their operations, too.
Growth forecasts under pressure
A new study from Oxford Economics has done little to calm the nerves, either. It estimates that Chinese gross domestic product (or GDP) growth will plunge to just 3.8% in the first quarter. As a result, global GDP expansion in the three months to March will register at 1.9%.
Oxford Economics also cut its forecasts for the whole year, somewhat unsurprisingly. It shaved six-tenths of a percentage point off its Chinese GDP growth estimate, to 5.4%. Its estimate for worldwide GDP growth is now put at 2.3%, too, down from 2.5% previously.
The forecasting body said that global GDP growth will pick up in the second half of 2020 “as the disruption from the virus outbreak fades, firms make up for the output lost earlier in the year, and the effect of China’s policy response starts to feed through to activity.” A logical assumption, sure. But we could well see more GDP estimates reduced further down the line should COVID-19 keep spreading quickly.
In this environment it could be a good idea to protect your shares portfolio with exposure to gold. It’s not just coronavirus-related fears that could fuel flight-to-safety demand for the yellow metal. Fresh tensions over Brexit, trade wars, and a host of other issues could also boost the commodity price in 2020.
I for one reckon buying shares in Highland Gold Mining, Polymetal International, and Centamin could be a good idea in the current climate. It’s not just that they all look cheap on paper (the latter trades on a forward price-to-earnings-growth ratio of 0.5 times. The other two carry price-to-earnings ratios of 10 times and below for this year).
It’s that they also carry prospective bulky dividend yields of 5% and above, too. All three of these diggers surged in value in 2019 thanks to strong gold prices. It looks as if the same phenomenon could be in train for 2020, too.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.