The World Gold Council expects that key factors that drove gold in the second half of 2018 will continue to hold sway over the market in 2019.
According to the World Gold Council Chief Market Strategist, Mr John Reade, the gold price generally trended down from mid-April, hitting a low around US$1,160 per ounce in mid-August, and as the dollar strengthened, the Fed continued to hike interest rates steadily while other central banks kept policy accommodative.
The US economy was lifted by the tax cuts from President Trump and bullish investor sentiment pushed US stocks higher – at least until the start of October.
But as risk in emerging economies started to spill over to developed markets, global stocks sold off led by US tech companies, resulting in short-covering in gold and its price rising comfortably above US$1,200/oz.
However, he notes that factors that drove gold in the second half of 2018 will continue in 2019.
The most important component for near-term price performance, however, will be linked to the activity of investors – whether driven by strategic or tactical reasons.
These investment flows, stemming primarily from the US and European markets and with China becoming increasingly important, will likely be driven by macro-economic factors such as perceptions of risk, and the direction of interest rates, as well as by momentum and positioning in the gold market – especially in the US.
If US stocks recover from their current bout of weakness and if the economy continues to out-perform the other major economies, the dollar may remain strong and gold may struggle to push significantly higher.
But if US growth slows, as the sugar rush from the tax-cuts pass or if trade wars or tighter monetary policy create further drag, then investors may continue to seek gold.
Further, if the economic slowdown is rapid or if risk assets fall sharply, investment flows into the commodity could match those seen during the 2008-2009 financial crisis.
“With it currently trading at less than two-thirds of its all-time high, in contrast to the lofty valuations of US stock markets, we believe now is a very good time to consider the role of gold in a portfolio.”
“As a high quality, liquid asset, with the potential to deliver strong returns, and as an effective diversifier that works particularly well when other assets fall sharply, gold has historically proven to enhance the long-term performance of investment portfolios,” he said. — Mining Review