Where to for Gold in 2019?

Welcome back and welcome to 2019!  This year has, for many years and for many analysts, been forecast as the year ‘it’ happens.  What ‘it’ is varies between a simple recession and large sharemarket correction, to an outright and rather catastrophic financial collapse.  Only time will tell, though gold is acting like that may be on the cards and many a prediction for it to go much higher from here.

But for now maybe a pause.  Santa brought Wall St some reprieve and the S&P500 bottomed Christmas Eve (2350) and has generally rallied from there to now sit just beneath the magic 2600 resistance line at 2596.  Is this a dead cat bounce or a structural rally from a fully played out correction?  Most seem to be calling the former but none of them really know.

Coinciding roughly with that Wall St low we saw AUD gold spot hit an all time high of $1850 as our AUD fell to just 68.7c on 2nd January as USD gold was at around $1290.  That was a $180 jump in just a month and somewhat predictably it’s taken a little correction coinciding with a rebounding Wall St and AUD.  

USD gold spot has been flirting with $1300 so far this year and in general is maintaining its upward trend since October last year.  More broadly, the upward trend is intact since the end of 2015, still up 22% on that low but well off the all time $1825 high in 2011.  Technically, USD gold is getting very close to the 50 and 200 daily moving averages crossing to the upside:

Gold 2019

So where to from here?  This week Goldman Sachs came out raising their 12 month price forecast to $1425 (that would be around $1980 at the current AUD/USD of 72c).  From Bloomberg:

“Bullion-backed exchange-traded funds are expanding, with holdings rising to the highest since May. On the Comex, futures have climbed 11 percent to $1,291.70 on Friday, from a low in August. Speculative interest in gold signals investors are not only closing bearish bets but are also adding to bullish positions, Suki Cooper, an analyst at Standard Chartered, said in a note.

Gold is also getting a boost from mounting speculation the Federal Reserve may pause in raising borrowing costs, boosting the appeal of non-interest-bearing metal.

“We expect the safe-haven bid, and to a lesser extent, gold’s inflation hedge properties, to remain key drivers of the metal’s price in 2019, complemented by a resurgence of physical demand,’’ Cantor Fitzgerald analysts led by Mike Kozak said in a report. Gold and silver are ‘‘looking good in 2019,’’ underlining a potentially positive indicators that ‘‘should drive a bullish case” for both metals “and as a result, the related equities as well.’’”

The World Gold Council have also just recently released their 2019 Outlook for gold.  Their executive summary and our summary of the key points are spelt out below or you can read the entire report here.

“Gold faced significant headwinds for most of 2018. A strong dollar, Fed rate hikes coupled with accommodative policy from other central banks, and a US economy buoyed by tax cuts fuelled positive investor sentiment and pushed US stock prices higher through the start of October. However, as geopolitical and macroeconomic risks increased, stock markets sold off and the gold price ended the year near US$1,280/oz outperforming most global assets.

Looking ahead, we expect gold demand to benefit from the interplay of market risk and economic growth. Specifically, we examine three key dynamics likely to influence how gold performs in 2019: 

•    financial market instability

    They cite:

  • Expensive valuations and higher market volatility 
  • Political and economic instability in Europe
  • Potential higher inflation from protectionist policies
  • Increased likelihood of a global recession.

•    monetary policy and the US dollar

  • They believe the USD rally has limited days left, the Fed is turning neutral to dovish, and Trump is on record as not wanting a high USD.

•    structural economic reforms.

  • With emerging markets making up 70% of gold demand, and that dominated by China and India, they discuss key economic reforms in these markets that should see increased prosperity and gold purchasing from their people.

Against this backdrop, we believe gold will become even more relevant due to its proven track record for delivering returns, its low correlation to major asset classes, its liquidity, and risk-adjusted returns.”