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World Gold Council hedges its forecasts for 2019

by Greg Klein | January 11, 2019

Both financial market instability and structural economic improvements bode well for its favourite metal, the World Gold Council reports. The WGC’s Outlook 2019 attributes an optimistic price outlook to an interplay of those two factors along with U.S. interest rates and the dollar.

Bullion and gold-backed ETFs would benefit as savings, investments, jewelry and technology drive up demand. The prognosis also sees central bank demand continuing to rise. Last year’s sovereign purchases reached the highest level since 2015 “as a wider set of countries added gold to their foreign reserves for diversification and safety.”

Accentuating gold’s safe haven status would be the financial market uncertainty apparent in higher volatility, European instability, protectionist policies and “an increased likelihood of a global recession,” the report states.

“Stubbornly low” bond yields offer poor protection against uncertainty, the WGC notes. Meanwhile Europe’s economy lags behind the U.S. as the continent faces Brexit, social unrest in France and separatism in Spain, among other challenges. Increasing protectionism and trade war rhetoric threaten economies with inflation and restrictions to “the flow of capital, goods and labour.”

Comprising 70% of consumer gold demand, emerging markets remain “very relevant” to gold’s long-term performance. China’s Belt and Road projects boost regional economic and infrastructure development. India’s economic modernization should continue last year’s 7.5% growth into 2019, “outpacing most global economies and showing resilience to geopolitical uncertainty.

“Given its unequivocal link to wealth and economic expansion, we believe gold is well poised to benefit from these initiatives. We also believe that gold jewellery demand will strengthen in 2019 if sentiment is positive, while increase marginally should uncertainty remain.”

To the allure of gold, the WGC attributes its returns on investment and its liquidity. Additionally, the metal provides an almost unique hedge that often correlates with the market in good times but detaches itself during negative periods, the council states.

While a stronger U.S. economy and dollar could stall gold, the last two months have shown a correction in equities along with weaknesses in other assets, said Joseph Cavatoni, WGC managing director for the U.S. and ETFs. With political uncertainty also troubling investors “we’re going to see gold start to have a much more relevant role to play in people’s investment portfolios.”

Not without skin in the game itself, the WGC represents some of the world’s top gold miners.

Download Outlook 2019: Global economic trends and their impact on gold.

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