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Global Economic Trends of 2019 and How They’re Expected to Affect the Gold Market

Will 2019 be more beneficial for the gold market than 2018? A recent report states that the interrelation between market risks and economic growth will cause a surge in the demand of gold this year. While 2018 was full of ups and downs for the yellow metal, the World Gold Council lists three key economic trends of 2019 that will influence its market price in the coming months.

  1. Volatility of the financial market
  2. Monetary policy and the US dollar
  3. Structural economic reforms

Let’s take a broader look at these three indicators and learn how they’ll become less or more beneficial for gold. If you decide to sell your gold anytime soon, this blog post should give you a good start.

Market Forecast for 2019 – Positive Signs for Gold

Gold faced a lot of ups and downs in 2018. According to Juan Carlos Artigas, Director of Investment Research at the World Gold Council, “This year, we see higher levels of risk and uncertainty across four key metrics: global stock market volatility; potential increases in inflation; political and economic instability in Europe; and increasing concerns about a global recession.” He expects a rise in the demand for gold in 2019, owing to basic economic reforms, financial market volatility and geopolitical disturbance.

As the financial market becomes unstable, many investors may resort to gold as a hedge against inflation and other systemic risks. While consumers buy gold as a symbol of wealth and prosperity, investors use it as a long-term profit-making tool. In 2018, gold faced strong headwinds from the point of investment. The US government’s tax cuts strengthened the long bull market in US equities for most of the year, while a stronger dollar and rising US interest rates decreased investment demand for gold. By the fourth quarter, these negative factors started easing away as geopolitical and macroeconomic risks increased and emerging market stocks receded. As market uncertainty grew, demand for gold increased and the price rose close to US$1,280/oz (-1% y-o-y).

The risks that became apparent last year are expected to carry over in 2019. With these, we see a lot of budding economic trends that will play a key role in deciding gold’s demand.

What We Expect

  • With rising market uncertainty and the popularity of protectionist economic policies, more investors will turn to gold as a safe haven.
  • While gold may face some setbacks from higher interest rates and US dollar strength, these negative effects are likely to be ebb out as the Fed takes a more neutral standpoint
  • Structural economic reforms in core gold markets will increase its demand in technology and as personal assets.

Financial Market Uncertainty

Gold-backed ETFs or exchange traded funds underwent significant outflows in 2018, especially in North America. However, there was a steady improvement in the pattern, as people sensed more risk and turned to gold as a safe investment. In 2019, we expect high levels of uncertainty across these fields: potential rise in inflation; global stock market instability; political and economic unrest in Europe; and rising fears about a global recession.

The WGC (World Gold Council) explains that factors like these could influence buyers to “favour gold as an effective diversifier.” As a consumer product and long-term savings tool, gold’s demand has been historically related to economic growth. The report states “As a safe-haven, its demand historically has been strongly responsive to periods of heightened risk.”

The Impact of High Rates and US Dollar Strength

Usually, higher short-term interest rates and USD strength have been believed to limit gold’s demand. However, high interest rates alone aren’t enough to discourage investors from buying gold, as seen between 2016 and 2018. While high interest rates together with a strong dollar can hamper the demand for gold, there are reasons why the up-surging US dollar may lose its strength.

Firstly, the US dollar DXY Index has already increased by around 10% from its 2008 lows. In 2016, a similar trend was followed by a correction. Secondly, as the Fed takes a more neutral standpoint, the positive effect of high US rates on the dollar is likely to decrease. Thirdly, the Trump government has often expressed resentment over competitive disadvantage caused by US dollar strength. Finally, upcoming market central banks keep diversifying exposure to the US dollar.

Structural Economic Returns

Growing markets contribute up to 70% of the global gold consumer demand, led by India and China. Both nations are welcoming economic changes that will increase income levels over a long time. India is expected to grow by 7.5% in 2019. As there is an interdependency between jewellery demand and increasing consumer wealth, the gold market is likely to benefit from this.

On the other hand, China’s ‘Belt and Road’ project focuses on encouraging regional economic advancement. This, in the long-term, should support demand for gold across several emerging markets. Overall, it’s safe to say that the gold market will benefit from positive consumer outlook in 2019. Even under trying economic circumstances, global demand for gold should still increase marginally or at least remain stable.

From a global perspective, gold is an attractive investment asset. Besides being an assured source of return for investors’ portfolios, it’s liquid and portable. This means that you can sell your valuables, anytime, anyplace, and get instant cash for gold. Moreover, gold is the only asset that’s negatively correlated to other forms of investment. Its price generally changes in the reverse direction to other assets like the stock market, bonds and treasury bills. Note that gold price forecast is a difficult task since there are several decisive factors that play their role. However, history holds testimony to the fact that gold has performed well, even under trying economic and social circumstances. It has never lost its shine.

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