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Do These Factors Point to a Strong Start for Gold in 2019?

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Gold’s fourth positive month

Gold’s price (GLD) saw its fourth consecutive positive monthly return in January. It rose ~3% after December’s rise of 4.9%. The major driver of gold’s price during the month was the dovish stance taken by the Federal Reserve. Fed Chair Jerome Powell mentioned at the start of January that the Fed would likely be more patient regarding raising interest rates.

In the Fed’s meeting, which ended on January 30, Powell stated that the case for raising rates (TLT) had weakened. Usually, gold prices and interest rates are inversely related. When interest rates rise, investors exit gold investments for interest-bearing ones, thus negatively affecting demand.

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Gold underperformed equity markets

Gold, however, underperformed broader equity markets in January. The S&P 500 Index (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite Index (QQQ) rose 8.0%, 7.3%, and 9.0%, respectively, in the same period.

Gold’s YTD performance stands in contrast to its performance in 2018, when it outperformed equity markets despite falling 1.9%. After gold touched its yearly low in August, gold prices rose ~10% until the end of the year. The fourth quarter was particularly strong for gold (NUGT) due to its safe-haven appeal.

Gold drivers for 2019

The major drivers of gold going forward in 2019 are thought to be rate hike expectations, the US dollar’s movements, the progress of US-China trade talks, and China’s slowdown concerns. The World Gold Council released its demand trend report for gold in the fourth quarter on January 31. While the report is backward-looking—as it shows the trends affecting gold’s demand and prices in 2018—it’s useful to analyze past trends and see which ones could stick around to support or put pressure on gold in 2019. In the rest of this series, we’ll analyze these trends and see what they could mean for gold’s outlook in 2019.

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