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Gold demand expected to thrive in 2019 according to major new Economic Outlook report

 

A perfect global storm of unstable financial markets, monetary policy and structural economic reforms means that demand for gold will be robust in 2019, according to the new benchmark Economic Outlook report from the Goldhub research team.

The report notes that 2018 was a period of highs and lows, with demand for gold steady but challenged by a strong dollar, central bank policies and a booming economy fuelled by the Trump administration’s tax cuts. The story started to change in Q4 but nevertheless, gold still outperformed most assets according to data from the World Gold Council, Bloomberg and ICE.

With 2019 now well underway, the Economic Outlook reports that the risks that started to emerge last autumn have been carried over, meaning this year will be marked by heightened risk and heightened potential for growth. The report states that,

We expect: 

  • Increased market uncertainty and the expansion of protectionist economic policies will make gold increasingly attractive as a hedge 
  • 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
  • Structural economic reforms in key gold markets will continue to support demand for gold in jewellery, technology and as means of savings.”

The global financial market instability currently playing out means gold is expected to find continual favour with investors looking to diversify and hedge against risk. Higher market volatility, political and economic turmoil in Europe, the looming threat of a worldwide recession and the prospect of protectionist policies pushing up inflation mean that risk will remain high in 2019 – putting gold firmly in favour.

In the US, investors are also uneasy with a very thin cushion to protect them in the event of market volatility – stocks are elevated but bonds are low, with the 10-year Treasury yield sitting at 1.5% below that held before the 2008 crash. Volatility metrics compound this unease, increase from 13 last summer to an average of 21 at the end of the year.

Data cited in the Outlook, sourced from the World Gold Council and Bloomberg also points to major challenges in Europe, with growth lagging behind that of the US, while stock prices relative to sales remain high and yields low. The Outlook notes that Europe is increasingly vulnerable, with Brexit causing turmoil and investor uncertainty and political and social unrest spreading across Europe, from France to Spain and Italy. Higher inflation is also a concern, as protectionist policies globally expected to stint growth.

The US too isn’t immune, meaning European investors aren’t the only ones steadily adding gold to their portfolio. It’s becoming harder to get credit, meaning consumers are starting to feel the pinch, the US Treasury curve is at pre-2008 levels of flatness – so much so that it may begin to invert in the next few months, something which historically precedes a recession.

Across the globe in emerging markets, both India and China are thriving and taking measures to ensure growth with modern economies, fewer barriers to commercialisation, infrastructure upgrades and a focus on regional economic development. India, while seemingly resilient in the face of political and market uncertainty elsewhere could well be the dark horse of the year, with economists predicting that a forecasted 7.5% growth will see it outperform the world’s existing major economies in 2019.

The Economic Outlook report concludes with a very telling summary, highlighting exactly why now is the right time to buy gold. The report notes, “Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive.

In the longer term outlook, gold will be supported by the development of the middle class in emerging markets, its role as an asset of last resort, and the ever-expanding use of gold in technological applications.

In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a wider set of countries added gold to their foreign reserves for diversification and safety.”

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