Market risk, economic growth to drive gold demand in 2019

Hong Kong. The daily range in gold continues to compress, after trading to an intra day high of $1,300.40, and an intraday low of $1,278 on Friday of last week.

Analysts say there is no exception as traders were able to push the market to a high of $1298 and as low as $1286.70.

The World Gold Council (WGC) has said it believes gold will become even more relevant this year owing to “its proven record” for delivering returns, its low correlation to major asset classes, its liquidity and its risk-adjusted returns.

Looking ahead, the council expects gold demand to benefit from the interplay of market risk and economic growth, with key dynamics, such as financial market instability, monetary policy, the dollar and structural economic reforms, likely to influence the precious metal’s performance in 2019.

This forecast comes on the back of the commodity having faced significant headwinds for most of 2018. A strong dollar, rate hikes by the US Federal Reserve (the Fed) 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, emerging market stocks pulled back and developed market stocks eventually followed.

This resulted in short-covering in gold, with its price ending the year near $1,280 per ounce, outperforming most global assets. This is a 1 per cent decline year-on-year, the council said in a report, published on Thursday.

In the new year, meanwhile, the WGC expects growing market uncertainty and the expansion of protectionist economic policies to make gold increasingly attractive as a hedge.

While gold may face headwinds from higher interest rates and dollar strength, the council believes these effects will be limited as a result of the Fed having signalled a more neutral stance. (WCG)