Gold may face headwinds, Outlook 2019
Recently World Gold Council published the report: Outlook 2019: Economic trends and their impact on gold. The report says, the gold market in 2019, as we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand.
And we explore three key trends that we expect will influence its price performance:
1: financial market instability
2: monetary policy and the US dollar
3: structural economic reforms.
Against this backdrop, we believe that gold has an increasingly relevant role to play in investors' portfolios.
Peeping at 2018 ups and downs, WGC says, gold’s price seesawed in 2018 as investor interest ebbed and flowed despite steady growth in most sectors of demand. Gold faced significant headwinds for most of the year. The dollar strengthened, the Fed continued to hike steadily while other central banks kept policy accommodative, and the US economy was lifted by the Trump administration’s tax cuts.
These factors fuelled positive investor sentiment which, in turn, pushed US stock prices higher, at least until the start of October. But as geopolitical and macroeconomic risks continued to increase, emerging market stocks pulled back. Eventually, developed market stocks followed, in a selloff led by US tech companies.
This resulted in short-covering in gold with its price ending the year near US$1,280/oz (-1% y-o-y).
Gazing Potential for growth and heightened risk in 2019 report says, we expect that many of the global dynamics seeded over the past two years and the risks that became apparent later in 2018 will carry over. And with them, we see a set of trends developing that will be a key in determining gold’s demand. In turn, their interplay will be most relevant for gold's short- and long-term price behaviour.
We expect: 1. Increased market uncertainty and the expansion of protectionist economic policies will make gold increasingly attractive as a hedge, 2. While gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance.
3. Structural economic reforms in key gold markets will continue to support demand for gold in jewellery, technology and as means of savings.
Focusing on price factor the report outlook is deriving the drivers of price & says Gold has a dual nature: consumption and investment. And gold price drivers can be grouped into four categories: A: wealth and economic expansion, B: market risk and uncertainty, C: opportunity cost & D: momentum and positioning.
As a consumer good and long-term savings vehicle, gold demand historically has been positively correlated to economic growth. As a safe-haven, its demand historically has been strongly responsive to periods of heightened risk. In the short and medium term, however, the level of rates or the relative strength of currencies, as well as investor expectations, can either enhance or dampen gold’s performance.