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Gold to regain its lustre this year

Predictions for gold pricing in 2019 is an invidious task as the sector was dominated by a gloomy 2018.

However, the yellow metal displayed an overall gain in the fourth quarter of 2018 due to environmental factors that impacted price.

This could be a small indication that the year ahead may be more positive for the sector, writes SASCHA SOLOMONS.

This article first appeared in Mining Review Africa Issue 2, 2019

According to Juan Carlos Artigas, director of investment research at the World Gold Council (WGC), 2018 was a roller-coaster year for financial markets and the commodity was no exception.

Higher interest rates, a strong dollar, and rising stock prices hampered performance for most of 2018.

However, Q4 saw a rally as geopolitical and macro-economic risks escalated and global stock markets tumbled.

“The price rebounded, closing the year at around $1 280/oz – just 1% down for the year. In fact, gold outperformed almost all global financial
assets,” he highlights.

Looking ahead the WGC expects global dynamics that seeded over the past two years alongside risks that crystallised in late 2018 will continue.

There are three trends that will play a key role in defining gold’s performance in 2019.

  1. The first is continued market uncertainty and the expansion of protectionist policies that will make gold increasingly attractive as a hedge.
  2. Secondly, gold may face headwinds from higher interest rates and continued dollar strength. However, these effects are likely to be dampened as the Fed takes a more neutral stance and other central banks normalise monetary policy.
  3. The third and final trend is the structural economic reforms in key markets like India and China which will continue to support the demand for gold in jewellery and technology and as a means of savings.

Additionally, a large number of central banks purchased gold in 2018 and the WGC believes that they will keep expanding their use of gold in foreign reserves in years to come.

Against this backdrop, Artigas adds that gold will be increasingly relevant as investors seek returns, liquidity, and diversification opportunities.

The WGC’s chief market strategist and head of research, John Reade, notes that gold is often lumped together with the commodity complex by investors and investment practitioners alike.

Whether as a component in a commodity index, one of the securities in an ETF, or as a future trading on a commodity exchange, gold is viewed as a part of this complex.

It undoubtedly shares some similarities with commodities but a detailed look at the make-up of supply and demand highlights that the differences
outnumber the similarities:

  • The supply of gold is balanced, deep and broad, helping to quell uncertainty and volatility
  • Because gold is not consumed like other commodities, its above-ground stocks are always available for continuous utilisation
  • Gold demand comes from a wide range of segments and regions; and
  • Gold is a luxury good as well as a safe haven, resulting in better protection for investors during downturns.

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