GFMS Expects Gold to Average US$1,292 in 2019

The price of gold is expected to average US$1,292 per ounce this year, says Refinitiv GFMS in its Gold Survey Q4 2018 Review and Outlook, released on Wednesday (January 30).

The GFMS metals research team, a unit of Refinitiv, stated the yellow metal’s fourth quarter performance was supported by an increase in safe haven demand and renewed interest from investors. The report also noted that this trend is expected to continue in 2019.

“We expect gold prices to continue to benefit from continued economic uncertainty and a slowdown in the US economy,” said GFMS analysts at Refinitiv.

Adding, “[a]s we approach the end of the economic-growth cycle, demand for defensive assets is likely to pick up as concerns deepen about the widening US budget deficit and as the tariff-driven trade war starts to damage the country’s economy.”

The renewed investor interest, paired with a shift in the purchasing behavior of emerging market (EM) central banks, have cumulatively offset a decline in the retail investment and jewelry sectors.

The report also noted that the increase in exchange-traded fund (ETF) interest, which began to takeoff in Q3 2018, recording inflows of 114 tonnes, resulted in total ETF holdings reaching 2,321 tonnes in the fourth quarter — its highest level since June 2018. During this time, investor interest grew with speculators buying to cover short positions, or bearish bets, on Comex.

Despite the uptick in ETFs, the analysts noted that physical markets will more than likely be subdued due to the higher price level, which is why the GFMS predicts an average price of under US$1,300 per ounce for the precious metal in 2019.

Official-sector purchases during the fourth quarter of last year were 196 tonnes, which are the most so far this century. According to the GFMS report, this brought total estimated net purchases for the year to 571 tonnes.

“A shift in central-bank behavior, in which further EM countries are seeking to build their gold reserves, has resulted in some countries reporting their first transaction in 2018 since the turn of the century.

“China, which has not reported a change in its gold holdings since October 2016, reported for the first time in December a 10-tonne increase in its holdings, with weakness in the Asian equity market driven by trade tensions with the US a key influencer,” the analysts added.

Although China increased its gold reserves during the fourth quarter, it scaled back on its jewelry demand. The Asian country, which accounts for more than 80 percent of the world’s total jewelry fabrication and consumption, recorded declines of 2 percent and 5 percent retrospectively thanks to a slowdown in economic performance.

Overall, global jewelry demand declined 3 percent for consumption and 2 percent for fabrication. Fortunately, a spike in North America’s jewelry demand helped to compensate for some of the decline.

“North American fabrication and consumption jumped by an impressive 17 percent and 41 percent in light of a rising dollar and improving economy,” GFMS analysts stated.

Finally, the report revealed that global mine output rose 12 percent, an increase of 27.7 tonnes, during the first nine months of 2018. Indonesian output rocketed 32.4 percent, thanks to higher grades, while Australian production climbed 8.3 percent and Canada’s was up 9.6 percent.

The largest decreases were posted in China, South Africa and the United States, with a combined fall of 56.7 tonnes. Average all-in sustaining costs increased 4.5 percent year-on-year to US$924 per ounce.

As of 12:28 p.m. EST on Wednesday, gold was trading at US$1,310.70 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.