Market Watch: In a Chaotic 2019, Gold will be the Best House in a Bad Neighborhood

Article by Barbara Kollmeyer in Wall Street Journal Market Watch

Are greater risks stacking up for investors in 2019?

In Europe, where Italy is locking horns with the EU and a Brexit deal hangs in the balance, mega-economy Germany has just produced the worst growth in nearly six years. Even if Wall Street can successfully shake off noise from the Old Country, a fresh threat from falling oil prices, along with worries over trade and a Fed misstep may cast long shadows.

“Equities appear to be in no-man’s-land,” says Sean Darby, Jefferies’ chief global equity strategist, who writes that Jerome Powell and co.’s intentions is the big thing keeping his clients up at night.

And they aren’t far off with those worries, according to our call of the day, which predicts 2019 will be a doozy for investors and advises they seek shelter in a much-neglected, glittering port.

“Being long gold has been a tough investment since 2012, and so often, when we see the yellow metal gaining traction, the U.S. dollar regains its mojo, and we see the inevitable reversal,” writes Chris Weston, head of research at Pepperstone Group. “However, as we look into our crystal ball and gaze into 2019, emerging warning signs can be seen that suggest 2019 could be the year where gold bulls finally get their day in the sun.”

He predicts a “capital preservation trade” will grip the world in 2019, reviving currency wars, which will boost gold’s safe-haven allure. And the trigger for all this will be a rise in U.S. unemployment and the realization by markets that the Fed has made a policy mistake by going too far with interest-rate hikes, which Weston says could hit in the second quarter of 2019.

Weston notes how the central bank has managed to brush off some concerning data points, such as rising inventory of unsold homes and falling capital goods orders, which likely contributed to market jitters we’ve seen as of late. But it won’t be able to ignore a cloud over the eternal sunshine of the U.S. labor market.

From there, “risk aversion will take hold, with a rampant flattening of the U.S. yield curve and a [dollar] flight will be in play. This is when gold works, especially when the position in gold futures has been significantly reduced,” he says.

To read this article in Wall Street Journal Market Watch, click here.