Gold’s soft start
Gold prices have started 2019 on a relatively soft note. YTD (year-to-date), as of January 17, gold prices (GLD) have risen 0.7%.
Gold has underperformed the broader equity markets, with the S&P 500 Index (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite Index (QQQ) rising 4.5%, 5.2%, and 4.5%, respectively, during the same period.
Gold’s performance in 2018
Gold fell 1.9% in 2018, outperforming the equity markets. The strong US dollar (UUP), which gained even more given the US-China trade dispute, was negative for gold, as were the Fed’s rate hike and hawkish outlook. US economic growth in the labor and consumer markets remained strong, and equity markets (SPY) (DIA) were strong until October, denting gold’s safe-haven appeal.
The major bounce in gold came in the last quarter of 2018. The catalyst of this trend reversal has been obvious: equity markets have been extremely volatile since October, with December being especially bad.
Gold’s drivers going forward
The major drivers for gold going forward in 2019 should be the Fed’s rate hike expectations, the US dollar’s movements, and the progress of US-China trade talks. Fed Chair Jerome Powell has maintained that in 2019, the Fed will be more patient in raising rates. This softer tone is positive for gold prices, as higher interest rates increase gold’s holding costs. Moreover, as the Fed slows down on rate hikes, the relative strength of the US dollar could also wane—another positive for gold.