The World Gold Council expects 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 John Reade, the gold price generally trended down from mid-April, hitting a low around $1,160 per ounce in mid-August 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 with factors that drove gold in the second half of 2018 will continue in 2019.
"Physical buyers, whether they are in China or India, which together make up half of consumer demand for the commodity should be solid, bolstered by good growth in these two important economies," Reade comments.
"Technology demand, which has grown steadily over the last eight quarters, should continue to perform well as the world becomes ever-more connected digitally.
"Central banks, whose collective buying has been one of the standout positive surprises this year, are widely expected to continue to buy gold next year and it’s possible that additional central banks will join the list of buyers, as seen in 2018," he adds.
All of these sources of demand are not only relevant to gold’s performance next year, but also underpin its long-term performance.
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 passes 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."