Gold Outshines Stocks in 2017

Summary

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WSJ Your Money Briefing

Episode: "Gold Outshines Stocks in 2017"

Date: August 25, 2017
Host: Charlie Turner
Guest: Ira Iosubashvili, Wall Street Journal Reporter

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Episode Overview

In this concise yet insightful episode, host Charlie Turner discusses with Wall Street Journal reporter Ira Iosubashvili the surprising performance of gold in 2017—a year when gold has outperformed the stock market for the first time since 2011. Despite rising stock markets and strong corporate earnings, investors have been turning to traditional "safe havens" such as gold, as underlying unease about various economic and political factors has increased. The conversation explores the reasons behind this shift, the unusual market dynamics at play, and what they signal about investors' sentiment and concerns.

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Key Discussion Points and Insights

1. Safe Haven Surge Amid Market Highs

• While stock markets (S&P 500) have reached record highs in 2017, gold has also surged, reflecting investor nervousness.
• Safe haven assets, including the Japanese yen and Swiss franc, have similarly risen.
• Quote:

  “Gold isn't the only safe haven they've been going to. The Japanese yen, the Swiss franc have also risen. And that's of an underlying unease that is present in the markets right now, even as the averages have made new highs this year.”
  — Ira Iosubashvili (00:54)

2. Performance Numbers

• Gold up about 12% for the year, outpacing the S&P 500 by a couple of percentage points; both assets rising together is uncommon.
• Price of gold at the time: approximately $1,288 per ounce.
• Quote:

  “Gold has risen... around 12%. The S&P 500 has risen a couple of percentage points less... the fact that they are rising together is kind of unusual.”
  — Ira Iosubashvili (01:19)

3. Investor Worries and Market Anxiety

• Investors remain uneasy due to:
  • Upcoming debt ceiling negotiations and risks to the US’s AAA credit rating.
  • Mixed economic data: strong employment contrasts with weak manufacturing and auto sales.
• Quote:

  “We have upcoming debt ceiling negotiations next month and that roiled markets in the past... Second thing... investors are concerned about this kind of uneven US data... strong unemployment month after month. Other metrics are... falling.”
  — Ira Iosubashvili (01:56)

4. Lack of Market Pullbacks

• The stock market hasn't experienced a significant pullback in 19 months, making some investors wary of a sudden and sharper correction.
• Quote:

  “It's been 19 months counting since January 2016 since we've had some kind of significant pullback... the positioning is so one sided that it could be particular, sharp and deep.”
  — Ira Iosubashvili (03:11)

5. Speculative Activity in Gold

• Speculative bets on gold (by hedge funds and others) reached over 179,000 contracts—highest in several months.
• Lower expectations for a Fed rate hike (since weaker data and less fiscal stimulus are expected) make non-yielding gold more attractive.
• Quote:

  “Net bets by hedge funds and other speculative investors on a higher gold price stood at more than 179,000 contracts... that's the highest in several months.”
  — Charlie Turner (03:38)
  “...chances falling that the White House will be able to pass fiscally stimulative legislation anytime soon...less confident that the Fed will be able to raise interest rates a third time this year. And that's good for gold...”
  — Ira Iosubashvili (03:57)

6. Gold's Outperformance Against the Grain

• This is the first year since 2011 that gold has outperformed stocks while both have been rising—an unusual alignment.
• Some investors are reallocating gains from stocks into gold to hedge against market turmoil.
• Quote:

  “Some of the investors that I talked to said that either them or their clients are...taking a little bit of that money and locking in profits and putting that in gold to cushion any potential blows to the portfolio.”
  — Ira Iosubashvili (04:51)

7. Impact of a Weaker Dollar

• The US dollar has fallen about 7% for the year, supporting gold and other commodities.
• A cheaper dollar makes gold more affordable to foreign investors, providing a tailwind for gold prices.
• Quote:

  “The dollar's down around 7% this year. And it's a big reason why gold and many other commodities are having a year. Gold is priced in dollars, so when the dollar declines, gold becomes more affordable to foreign investors.”
  — Ira Iosubashvili (05:24)

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Memorable Moments & Quotes

| Timestamp | Quote | Speaker | |-----------|-------|---------| | 00:54 | “Gold isn't the only safe haven they've been going to. The Japanese yen, the Swiss franc have also risen. And that's of an underlying unease that is present in the markets right now, even as the averages have made new highs this year.” | Ira Iosubashvili | | 01:19 | “Gold has risen... around 12%. The S&P 500 has risen a couple of percentage points less... the fact that they are rising together is kind of unusual.” | Ira Iosubashvili | | 01:56 | “We have upcoming debt ceiling negotiations next month and that roiled markets in the past... Second thing... investors are concerned about this kind of uneven US data... strong unemployment month after month. Other metrics are... falling.” | Ira Iosubashvili | | 03:11 | “It's been 19 months counting since January 2016 since we've had some kind of significant pullback... the positioning is so one sided that it could be particular, sharp and deep." | Ira Iosubashvili | | 03:38 | “Net bets by hedge funds and other speculative investors on a higher gold price stood at more than 179,000 contracts... that's the highest in several months.” | Charlie Turner | | 04:51 | “Some of the investors that I talked to said that either them or their clients are... taking a little bit of that money and locking in profits and putting that in gold to cushion any potential blows to the portfolio.” | Ira Iosubashvili | | 05:24 | “The dollar's down around 7% this year. And it's a big reason why gold and many other commodities are having a year.” | Ira Iosubashvili |

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Segment Timestamps

• 00:20 — Introduction and episode theme
• 00:54 — Safe haven assets rising amid market highs
• 01:19 — Gold and S&P 500 performance comparison
• 01:52 — Detailed investor concerns: debt ceiling, uneven data
• 03:11 — Prolonged lack of stock market pullback
• 03:38 — Increased speculative activity in gold
• 04:38 — Gold's outperformance as stocks rise
• 05:24 — Impact of a weaker dollar on gold

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Summary

In an atypical financial year, gold’s ascent alongside booming stock markets signals deep-seated investor anxiety despite outward optimism. Concerns about US political negotiations, mixed economic indicators, and a long stretch without market corrections are fueling a notable flow toward safe havens and speculative interest in gold. Both seasoned and casual investors are rebalancing portfolios, using gold as a shock absorber, while a weaker dollar amplifies demand. The episode offers a compact yet illuminating analysis for anyone seeking to understand the interplay of current events and asset allocation trends in 2017.

Transcript

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise

[B]

this Is yous Money Matters

[C]

from the Wall Street Journal. Welcome to youo Money Matters. I'm Charlie Turner in New York. The markets have risen to record highs this year on the back of strong corporate earning. 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 Josabashvili. Ira, is this a matter of investors going to a safe haven?

[B]

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' of an underlying unease that is present in the markets right now, even as the averages have made new highs this year.

[C]

Some numbers here. How much has gold risen this year versus the stock market, namely the S&P 500?

[B]

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, 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.

[C]

So the price of gold is, I think, as you wrote, about $1,288.

[B]

I think it was down a little bit today. But yeah.

[C]

Ira, what specifically are investors worried about?

[B]

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 roiled markets in the past. Fitch warned that the US 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 US 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 why can't everything be good?

[C]

I'm speaking with Ira Yosibashvili of the Wall Street Journal and you're listening to youo 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?

[B]

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 particular, sharp and deep. And that is worrying people.

[C]

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.

[B]

Right. That's one indicator that investors and reporters use to see the bullishness or bearishness. Bearishness of a market. Basically, as we write in the piece, One reason for that is with the uneven US 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. Investment as opposed to when rates rise.

[C]

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?

[B]

It is unusual and I think that speaks to the unease that investors feel. Some of the investors that I talked to said that either them or their clients are. Even as they continue to see gains in the stock markets, they're taking a little bit of that money and locking in profits and putting that in gold to cushion any potential blows to the portfolio.

[C]

And also is another reason that gold has been on a roll as of late. The weak dollar.

[B]

The dollar's down around 7% this year. And it's a big reason why gold and many other commodities are having a year. Gold is priced in dollars, so when the dollar declines, gold becomes more affordable to foreign investors. It's a big tailwind for the gold price.

[C]

Wall Street Journal reporter Ira Josibashvili, thank you very much for joining us.

[B]

Thank you for having me, Charlie.

[C]

And that's yous Money Matters. I'm Charlie Turner at the Wall Street Journal.

[A]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. [e-mail] WashingtonWise.