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What Will Drive Gold Prices in 2019?

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Gold’s soft start

2019 has started on a relatively soft note for gold prices. As of January 24, gold prices (GLD) have remained flat year-to-date.

Gold has underperformed the broader equity markets. The S&P 500 Index (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite Index (QQQ) have risen 5.5%, 5.3%, and 5.8%, respectively, during the same period.

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Gold’s performance in 2018

Gold’s YTD performance is in contrast to its performance in 2018 when it outperformed the equity markets despite falling 1.9%. Since touching its yearly low in August, gold prices rose by ~10% to the end of the year. The fourth quarter was particularly strong for gold (NUGT) due to its safe-haven appeal. The equity markets remained highly volatile and fragile during the fourth quarter on concerns of a trade war, rate hikes, and China’s slowdown. These factors thus worked in gold’s favor.

Gold’s drivers going forward

The major drivers for gold going forward in 2019 are thought to be the expectations about Fed rate hikes, the US dollar’s movements, the progress of US-China trade talks, and China’s slowdown concerns. 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 (TLT), the relative strength of the US dollar (UUP) could also wane, which would be another positive for gold. We’ll discuss some of these drivers in the next parts of this series.

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