Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of…
From the World Gold Council
The gold market in 2019
As we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand. And we explore three key trends that we expect will influence its price performance:
- financial market instability
- monetary policy and the US dollar
- structural economic reforms.
Against this backdrop, we believe that gold has an increasingly relevant role to play in investors’ portfolios.
Why gold why now
Gold’s performance in the near term is heavily influenced by perceptions of risk, the direction of the dollar, and the impact of structural economic reforms. As it stands, we believe that these factors likely will continue to make gold attractive.
In the longer term outlook, gold will be supported by the development of the middle class in emerging markets, its role as an asset of last resort, and the ever-expanding use of gold in technological applications.
In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Central bank demand for gold in 2018 alone was the highest since 2015, as a wider set of countries added gold to their foreign reserves for diversification and safety.
More generally, there are four attributes that make gold a valuable strategic asset by providing investors:
- a source of return
- low correlation to major asset classes in both expansionary and recessionary periods
- a mainstream asset that is as liquid as other financial securities
- a history of improved portfolio risk-adjusted returns.
A more tactical opportunity
In addition, gold speculative positioning in futures markets remains low by historical standards after hitting record lows in the final months of 2018. CME managed money net long positions stand near record low since 2006 – when data was first broken down by investor type. Furthermore, net combined speculative positions, which go back further, are negative for the first time since December 2001. And large net short positions have historically created buying opportunities for strategic investors, as such positions are prone to short-covering adding momentum to rallies in the gold price (Chart 6).
Editor’s Note: The post was an excerpt from the World Gold Council’s Outlook 2019: Economic trends and their impact on gold. You can read and download the entire report using this link. Glean from it what you may.