A positive gold performance in 2020
Outlook 2020: Global economic trends and their impact on gold, the report made public by the World Gold Council (WGC), is the market development organisation for the gold industry. Their purpose is to stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market.
Gold outlook 2020 says Risk appetite amid high uncertainty! “We expect that the interplay between market risk and economic growth will drive gold demand in 2020. In particular, we focus our attention on: 1: financial uncertainty and lower interest rates, 2: weakening in global economic growth & 3: gold price volatility. We also explore the performance of gold implied by our innovative Gold Valuation Framework across various hypothetical macroeconomic scenarios!” WGC said in report.
Yet the outlook is: ‘generally positive implied performance for 2020!’ Gold rallied by 4% in December 2019, increasing by an additional 6% by 7 January 2020. While we believe that there are various reasons for this move, tensions in the Middle East linked to the US-Iran confrontation ultimately pushed the gold price to an almost seven-year high in early January.
Subsequent comments by President Trump aimed to ease concerns, pushing the price down to the US$1,560/oz-US$1,550/oz level as of 10 January 2020. Yet, gold still remains still 2.6% higher relative to the end of 2019.4
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.
For example, using Qaurum, we analysed the performance of gold as implied by four different hypothetical macro-economic scenarios provided by Oxford Economics. These included, 1: a global deceleration (their base-case scenario), 2: a US-led recession, 3: a more pronounced slowdown in China & 4: an economic improvement in emerging markets.
The result of the analysis suggests that, in general, gold may see a positive performance in 2020. While some of the scenarios – with the exception of an economic upturn in emerging markets – could result in lower consumer demand, its dampening effect on price performance will likely be offset by potentially robust investment demand on the back of deteriorating credit conditions and stable to lower interest rates.
It is important to note, however, that this is not a comprehensive list of possible scenarios. Instead, they reflect key investor concerns as per Oxford Economics’ Global Risk Survey. Therefore, hypothetically, improving market sentiment – for example, a reduction on perceptions of risk, a lower likelihood of further rate cuts by the Fed or other major central banks, or tighter monetary policy through means other than rate cuts – could put downward pressure on gold’s price performance relative to the scenarios currently available.
