Gold Hits Third Highest Ever Year-End Price In 2019

January 9, 2020

By Patrick A. Heller

The price of gold closed on the New York COMEX at $1,519.50 on December 31, 2019. That was the highest year-end close since it settled at $1,674.75 at the end of 2012. Here is a list of recent year-end trading day closes:

As you can see, the year-end close for 2019 was exceeded only at the end of 2011 and 2012. I have a high degree of confidence that the price of gold at the end of 2020 will be higher than it was at the end of 2019.

The major reasons why I anticipate higher gold prices by the end of 2020 are:

• Potential further declines in the value of the U.S. dollar, especially with the Federal Reserve having to inject more than $4 trillion of liquidity into the U.S. banking system between mid-September and the end of December 2019.
• The extreme increase in demand for COMEX gold futures contracts over the course of 2019 is likely to continue into 2020 until the short-sellers throw in the towel. At the end of 2018, there were about 45 million ounces of gold committed by open interest on the COMEX gold futures exchange. Demand surged almost 75 percent over the course of the year to top 78.6 million ounces at the end of 2019. For each futures contract, there is a party on the long side who “owns” the underlying metal (or the value thereof) and a party on the short side who “owes” the metal (or the value thereof). The size of the open positions at the end of 2019 was about 50 percent greater than the pre-2019 record high.
• The shift on settling maturing COMEX gold contracts called for delivery in 2019 from the normal delivery of the physical metal, cash or shares in exchange-traded funds to the “emergency” option of exchange for physical (EFP). Under exchange for physical settlements, the short seller pays the long party some amount of cash plus a London market gold contract for the same amount of gold. Settlement by exchange for physical is the most expensive way for a short seller to settle up. If there were really ample physical inventory available to deliver against such contracts, that is what the short sellers would prefer to do. The fact that they cannot do so very often is a major signal of a huge shortage of physical gold available.
• At least one report has come out that the world’s central banks combined to make record-high annual purchases of physical gold in 2019 to add to their reserves, the greatest amount since the U.S. government closed the gold exchange window in August 1971.

There are a number of other reasons why gold prices could go higher in 2020, but I think these factors are likely to be the most important.

There is always the possibility of the price ending 2020 lower than at the end of 2019. But the indications are that demand is strong and not being covered by existing inventories and newly mined or recycled gold. To me, that means a higher price has a high likelihood of occurring.

While we are at it, let’s look how silver fared at the end of 2019 compared to other year-end prices this century:

As you can see, the 2019 year-end price was the highest since 2016 and is the fifth-highest year-end price ever. I also anticipate that the price of silver at the end of 2020 will be higher than at the end of 2019.