Mid-year 2019 gold outlook is of uncertainty!
Recently World Gold Council (WGC) published the ‘Mid-year 2019 gold outlook: Heightened risk meets easy money’. They say, “We believe that over the next six to twelve months, 1: Financial market uncertainty and accommodative monetary policy will likely support gold investment demand. 2: Price momentum and positioning may fuel rallies and create pullbacks, as investors continuously reassess their expectations based on new information. & 3: Weaker economic growth may soften gold consumer demand near term, but structural economic reforms in India and China will likely support long-term demand.
The report talks,
1: Risk off, risk on: The first half of 2019 proved quite eventful for financial markets. Stocks retraced their Q4 2018 losses by the end of April only to pullback again in May.1 A few weeks later; stocks reached new highs yet again. At the same time, central banks across the globe have signalled a more accommodative stance, bringing global bond yields to multi-year – and in some countries, all-time – lows.
2: Easy come, easy go: Global monetary policy has shifted by 180 degrees. Less than a year ago, both Federal Reserve (Fed) board members and US investors expected interest rates to continue to increase, at the very least through 2019. By December, the most likely outcome was for the Fed to remain on hold. Now, the market expects the Fed to cut rates two or three times before the end of the year.
3: Risks come in many flavours: Central banks are not acting in a vacuum. Instead, they stand ready to stimulate their respective economies should risks bubble up and a more significant global slowdown occur. These risks include, A: The potential negative long-term effect of higher tariffs amidst trade tensions between the US and its trade partners.
B: Geopolitical tensions between the US and Iran & C: Uncertainty surrounding Brexit and other political and economic concerns in the UK and Europe. Report also focuses other flavours of risk too with EM Demand. WGC says, ‘It’s all connected!’
Contrary to popular belief, gold’s performance is well explained by its supply and demand dynamics. Gold demand is linked to jewellery, technology and longterm savings, and these are important determinants of long-term performance. In the short and medium term their impact is felt predominantly when there are significant changes to demand. Conversely, gold investment demand amidst higher uncertainty-including speculative activity-can sway prices in a meaningful way in the short and medium term but its effects level off in the long run.
In addition, gold supply through mining or recycling brings balance to the market. As we look forward to the rest of the year, we believe that consumer demand may be soft and speculative activity could amplify price movements but, overall, it is likely that investment demand will remain robust and central banks will continue their net purchasing trend.
