The end of the year is approaching, which means that the season of summaries and forecasts has begun. As always, we can count on the World Gold Council's report for the gold market. John Reade, Director of Market Strategy, took a look at the most important events of this year. Will this year's phenomena continue in the coming 12 months?
SPRING TROUBLES AND AUTUMN BREAKTHROUGH
The starting point for Reade's considerations was an analysis of the key factors that influenced gold prices in the second half of 2018. The expert recalls the downward trend that began in April and continued until August, when the price of an ounce of gold exceeded the USD 1,160 barrier. The aforementioned decline in the price of gold coincided with the strengthening of the dollar. Stock prices on the US stock exchange also soared. The catalysts for these events included Trump's tax cuts and regular interest rate hikes.
The end of the good run came with the arrival of autumn, when concerns about emerging economies began to spread to Western markets. October saw a high-profile and sharp sell-off of shares, e.g., in technology companies. In many cases, one day was enough to wipe out the gains made over several months.
INDEXES DOWN, DEMAND FOR GOLD UP
As usual, the red color in stock market indices favored gold prices, which finally returned to growth, stabilizing above the USD 1,200 per ounce mark. Declining interest in stocks and still relatively low precious metal prices translated into a surge in demand. In the third quarter, demand for bars and coins from private investors was 28% higher than in the same period last year. In the case of central banks, the increase was 22%. (You can read more about this HERE.)
WHAT WILL 2019 BRING?
According to Reade, the most important factor driving gold prices in the coming year will remain the demand for safe investments. This demand will be generated primarily by macroeconomic conditions, such as fear and low interest rates. The expected economic slowdown, indicated by such signals as:
- rising protectionism
- tensions in Europe related to Brexit
- decline in enthusiasm caused by tax cuts in the US
- trade wars.
Reade believes that if these factors overlap, the scale of next year's investments in gold could reach the level seen during the financial crisis of 2008-2009. Let us recall that it was then that the biggest price rally of the 21st century began, culminating in 2011 when a historic record of $1,900 per ounce was set.
BRAKING ON THE HORIZON
It is not only foreign experts who are predicting an economic slowdown. The report "Macrotrends: First Quarter 2019" published by BGŻ BNP PARIBAS states that the average annual GDP growth of the most important economies will slow down:
- USA: from 2.9 to 2.1
- Western Europe: from 1.9 to 1.4
- China: from 6.2 to 6.0.
The decline is also expected to affect Poland, which has so far prided itself on its high resistance to global recessions. According to BGŻ experts, external factors will prevail this time. These are primarily protectionism and a decline in consumption in the eurozone, which will reduce demand for Polish goods and services, obviously affecting domestic entrepreneurs and, subsequently, their employees and families. According to forecasts, Poland's GDP growth rate will fall from 5.1% to 3.4%.
*Data in % as an average for the period.
A GOOD TIME FOR GOLD
In the context of the forecasted slowdown in global economies, Reade emphasizes that now is a very good time to expand your portfolio with gold. There are many indications that the coming quarters will bring a gradual increase in prices. Due to its high liquidity, gold can serve both as a source of profit and as a long-term hedge against crisis. In turn, the current undervaluation significantly lowers the barrier to entry into the market.
Based on: "World Gold Council reveals market outlook for 2019" (www.miningglobal.com) and "Macrotrends: First Quarter 2019. Slowdown on the horizon" (BGŻ PNB PARIBAS).
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