Lingering Economic Risks Put Gold on Track for Best Year Since 2010 – Wall Street Journal

The price of gold tends to swing based on geopolitical tensions and investor confidence in global growth. The precious metal often rallies when investors are skittish and trying to protect against a broad market downturn and stalls when there are few hurdles on the horizon for stocks.

After weeks of listless trading, prices have advanced in five of the last six sessions to hit their highest level in three months. They are up 18% for the year and about 2.4% below their six-year peak hit in early September. Gold traded Friday at $1,513.80 per troy ounce. The strong year has been a boon for shares of gold producers such as

Barrick Gold Corp.

and

Newmont Goldcorp.

, many of which have also posted outsize gains.

Although an initial U.S.-China trade pact and better-than-expected economic data around the world are supporting riskier investments late in the year, questions remain about future negotiations between the world’s two largest economies. Stagnant growth in Europe and Japan, a wave of recent protests from Latin America to Hong Kong and the coming 2020 U.S. presidential election are also lifting demand for gold.

“The market is being supported by increasing risks around the world, whether they’re geopolitical or financial,” said

Joe Foster,

who runs the VanEck International Investors Gold Fund. “It’s been pretty resilient.”

Mr. Foster has maintained investments in gold and silver miners recently, expecting precious metals to continue performing well.

Gold and stocks also logged sizable gains in 2017, again showing how both investments can rally at the same time during times of heightened geopolitical uncertainty. Stock traders have been using options to hedge against a market downturn, a trend some analysts think could continue ahead of next year’s presidential election.

Analysts are also monitoring a rebound in bond yields around the globe because higher yields make gold and silver less appealing to investors seeking returns from safer assets. The yield on the benchmark 10-year U.S. Treasury note, which affects everything from mortgage loans to student debt, has climbed back near 1.9% after sliding to a three-year low of 1.46% in early September.

The recovery in yields comes after the Federal Reserve indicated plans to leave borrowing costs where they are and signaled confidence in the economy after cutting interest-rates three times earlier in the year.

Still, some analysts are unsure about how much higher yields can climb, reflecting uncertainty about whether global growth can accelerate next year. Economic data in the U.S. and China have picked up, but some investors are waiting to find out how the “phase one” trade deal will impact the world economy.

“Is it enough to be a real propellant for economic growth going forward? It’s hard to know,” said Chris Mancini, an analyst at the Gabelli Gold Fund. “The details aren’t very specific.” Mr. Mancini has also stuck with his investments in gold miners because he is waiting to see how economic data and monetary policy affect markets.

Another factor boosting gold: weakness in the dollar. The U.S. currency has fallen more than 2% below a peak it hit against a basket of currencies late in the third quarter, supporting assets like gold that are denominated in dollars and become cheaper to overseas buyers when the currency weakens.

Shares of some large gold producers have also benefited. Barrick Gold is still up 36% for the year, while Newmont Goldcorp shares have advanced 23%. The S&P 500 is up 29%, heading for its biggest annual gain since 2013.

For now, some investors are paring back large gold bets in case the metal’s latest rally stalls. About $1.2 billion has flowed out of the

SPDR Gold Trust,

the world’s largest gold-backed exchange-traded fund, since mid-October, according to FactSet. That marks a reversal from the summer, when billions of dollars flowed into the fund.

And hedge funds and other speculators cut net bets on higher gold prices to their lowest level since late June during the week ended Dec. 10, Commodity Futures Trading Commission data show. Net bullish bets rebounded the following week but are still 25% below a peak hit in late September.

Bets on higher prices still far outnumber bearish wagers, and some analysts caution that it is too early to predict a sharp acceleration in global economic growth.

Suki Cooper,

precious-metals analyst at Standard Chartered, predicts gold will resume its rally later in 2020 when she expects the economy to soften.

“We’d really be looking at a slowing in some of the data and signals that the Fed might be considering rate cuts in the last quarter,” she said.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com