Market Risk and Economic Growth to Drive Gold in 2019: WGC

A new outlook report for 2019 predicts that connections between market risk and economic growth will drive gold demand this year.

The report, released on Thursday (January 10) by the World Gold Council (WGC), lays out the different factors that affected the precious metal’s price in 2018, including interest rate hikes from the US Federal Reserve, a strengthening US dollar and the state of the US economy.

While last year was somewhat hot and cold for gold, the council expects three key trends will drive its price performance in the coming months: financial market instability; monetary policy and the US dollar; and structural economic reforms.

With regard to financial market instability, the WGC explains that many investors will likely fall back to the yellow metal as a hedge against systemic risk.

It suggests that factors on the horizon like political and economic instability in Europe, heightened market volatility and expensive valuations could lead buyers to “favour gold as an effective diversifier.”

“As a consumer good and long-term savings vehicle, gold demand historically has been positively correlated to economic growth,” the report reads. “As a safe-haven, its demand historically has been strongly responsive to periods of heightened risk.”

As for gold’s relationship with the US dollar and interest rates — whose combined impact can cause gold to falter — the WGC anticipates that the upward trend the dollar has seen may be “losing steam.”

Two factors behind this notion are diversified exposure to the US dollar through emerging market central banks and US President Donald Trump’s very vocal administration, which has openly spoken about competitive disadvantages stemming from the US dollar’s strength.

Alongside those factors, however, is the Fed’s stance going into this year. While 2018 saw four separate interest rate hikes, the central bank has stated it plans to have a more neutral stance this year and expects to only see two interest rate hikes in 2019.

Rounding out the report’s list is structural economic reforms, which puts the spotlight on emerging markets India and China. According to the report, both countries have been moving forward with economic changes necessary to promote growth and secure their relevance on a global scale.

“Given its unequivocal link to wealth and economic expansion, we believe gold is well poised to benefit from these initiatives,” the WGC states.

Gold was down 0.34 percent to US$1,287.60 per ounce on Thursday (January 10) as of 2:30 p.m. EST.

For more from the WGC, click here for a recent interview with CFO Terry Heymann.

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.