WGC: OUTLOOK FOR THE GOLD MARKET IN 2018

What will 2018 bring for the gold market? Yesterday, the World Gold Council (WGC) published a report on the four main trends that will have the strongest impact on gold prices this year.

1. Synchronization of global economic growth

Ten years after the financial crash, the US economy has finally gained momentum. The situation in Europe has also improved, with corporate profits and wages rising and unemployment falling. China, on the other hand, has slowed down somewhat, focusing on the government's "One Belt One Road" initiative, which aims to revive the Silk Road. India, the world's second-largest gold market, expects the chaos following the introduction of the new goods and services tax (GST) to soon subside, providing the domestic economy with better conditions for growth.

The favorable economic situation will support global demand for gold. Rising incomes will translate into increased demand for technological products manufactured using gold, such as smartphones and tablets. In addition, savings will increase, which is likely to boost the purchase of gold bars and coins. These trends were already evident last year, when consumer demand for gold in China rose by 12% between the first and third quarters, and demand for jewelry in the US reached a seven-year high.

2. Tightening monetary policy and raising interest rates

Continued economic growth will lead to further tightening of monetary policy. The Fed has already declared that it plans to issue Treasury bonds and mortgage-backed bonds with a total value of $50 billion each month. In this way, the Reserve wants to reduce its balance sheet from $4.5 trillion to $2.5 trillion in 2020. In addition, at least two interest rate hikes are expected this year.

The new strategy marks a shift in the current policy of central banks. The effects of these measures will be visible in asset markets, which have benefited greatly from years of quantitative easing. There may be an increase in volatility and a decline in record profits. On the other hand, tightening will not lead to a noticeable increase in historically low interest rates, which means that gold will remain the best long-term investment. In addition, the precious metal has the opportunity to gain new supporters among investors concerned about increased risk on the stock market.

3. Record asset prices

In 2017, asset prices broke almost all records. On the US stock market, the S&P 500 index reached its highest level ever. In pursuit of profit, investors became even more risk-averse and began to bet on financially unstable companies. As a result, stock market prices rose worldwide.

2018 is likely to be another period of bullish markets. Although experts have been warning about a bubble for several years now, share prices continue to rise and credit standards continue to fall. It is to be expected that an increasingly wider group of investors will begin to realize the scale of the threat and turn their attention to so-called safe havens, which include gold.

4. Increased transparency and efficiency of markets

Over the past few decades, financial markets have become more transparent and efficient, attracting crowds of new investors. The gold market is no exception. In 2017, the London Bullion Market Association (LBMA) disclosed for the first time the exact amount of gold held in London. This is intended to be the start of a new initiative of regular reporting of trade data. The impetus for evolution can also be seen in India. The gold market there is extremely fragmented, which is why measures are being taken to normalize it and increase liquidity.

In 2018, we can also expect progress in reducing barriers to investing in gold. The Russian government has submitted a draft amendment to the tax code for consideration, which includes exempting gold from tax. Currently, it amounts to as much as 18%. Such a change would contribute to the development of a new gold market in Russia.