Gold’s Top Drivers in 2020, According to the WGC

US President Donald Trump signed a phase one trade deal with China on Wednesday (January 15), but the World Gold Council (WGC) remains resolute that geopolitical tensions, likely in the Middle East, will continue to drive investor interest in the metal as a safe haven asset.

As the WGC’s recently released gold outlook notes, 2019 was a banner year for the yellow metal, which experienced its best performance since 2010, rising 18.4 percent.

Now that the phase one deal has been reached between Washington and Beijing, some volatility may be eased, although events in Iran in recent weeks may be a new catalyst for the precious metal.

Gold hit its highest price since 2013 in early January following an air strike that killed Iranian general Qasem Soleimani. It then topped those highs a few days later, moving above US$1,600 per ounce after Iran launched a retaliatory air assault on Iraqi military sites housing American troops.

As cooler heads prevailed, the price of gold dropped from US$1,600 to the US$1,550 range, where it remains currently at US$1,552.50.

More price volatility is expected over the next 12 months, however.

“As the gold price significantly rose in 2019 so did volatility, but, similarly to other assets, it remains well below its long-term trend,” reads the outlook from the WGC.

“And we don’t anticipate a reduction in gold volatility near term. Should the economic and political environment deteriorate, it may even rise, especially as gold volatility historically exhibits a positive skew in such circumstances, tending to increase as stocks pull back.”

Increased buying from central banks is also anticipated to impact the value of gold, but the market development organization is unsure if demand will reach the same high levels seen in 2019.

All in all, the WGC is forecasting a supportive environment for gold over the next year, noting that current issues in the Middle East will only drive the market for a short period.

“We expect that investor positioning related to this specific event will likely influence gold’s performance in the near term. But over the medium term, broader financial and geopolitical uncertainty and developments in monetary policy will play a more important role,” it states.

The WGC has also launched a new web-based quantitative tool to help investors better understand the drivers behind gold’s performance.

Dubbed Qaurum, the analytic instrument couldn’t come at better time. The market is ripe with volatility related to a variety of tensions in geopolitical relations and trade.

“Behind its user-friendly interface, Qaurum is powered by the Gold Valuation Framework (GVF),” notes the WGC’s yearly report. “An academically validated methodology, GVF is based on the principle that the price of gold and its performance can be explained by the interaction of demand and supply.

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