Factors undermining gold in 2018
The World Gold Council (or WGC) chief market strategist and head of research, John Reade, analyzed gold’s performance in 2018. He attributes a part of gold’s (GLD) underwhelming performance in 2018 to the tax bill passed by the Trump administration, which supported economic growth in the short term. He also believes that the dollar inflows into the US (SPY) (VTI) helped the US dollar (UUP), which pressured gold prices. Reade maintained that these factors are unlikely to continue for a very long time.
Outlook remains balanced
Reade underlined several reasons why gold’s outlook is “interestingly balanced” in 2019. He believes that if the recent weakness and volatility in the equity markets (IVV) continue in 2019, the US economy is likely to get impacted. This, in turn, would make investors concerned about their equity and bond holdings.
Drivers for gold prices in 2019
Reade also expects physical gold buying, especially from India (INDA) and China (FXI) to support gold prices in 2019, supported by good growth in these economies. He also stated that the continuous buying from central banks and the possible addition of more central banks to the list of buyers will support gold (NUGT) in 2018.
Investors should note that central banks’ gold (SGOL) buying has hit the highest level in almost three years for the quarter ended in September 2018. Banks bought almost 148 metric tons of gold during the quarter, implying growth of 22% year-over-year. Most market participants believe that the move towards gold is due to the central bankers’ intent to diversify away from the US dollar (UUP). Russia’s gold buying activity is certainly a case in point. More and more countries want to reduce their dependence on the US dollar and back up their debt with gold instead.