After a stellar 2019, where will gold prices go in 2020? Well, the metal’s biggest bulls, The World Gold Council reckons it’s up (as you’d expect), and it will be driven by what it calls “the interplay between market risk and economic growth.”
And this interplay will be between financial uncertainty and lower interest rates; a weakening in global economic growth and the volatility of the gold price.
In its latest outlook, the WGC didn’t provide any price targets, just factors such as:
“Financial and geopolitical uncertainty combined with low-interest rates will likely bolster gold investment demand.
“Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters; Momentum and speculative positioning may keep gold price volatility elevated.”
“And while gold price volatility and expectations of weaker economic growth may result in softer consumer demand near term, structural economic reforms in India and China will support demand in the long term.”
2019 saw gold have its best performance since 2010, rising by 18.4% in US dollar terms last year.
It also outperformed major global bond and emerging market stock benchmarks in the same period. In addition, gold prices reached record highs in most major currencies except the US dollar and Swiss franc (notably in Aussie dollars at more than $A2,150 an ounce according to the WGC).
Gold prices rose most between early June and early September as uncertainty increased and interest rates fell.
But investors’ appetite for gold was apparent throughout the year, as seen by strong flows into gold-backed ETFs, growing gold reserves from central banks, and an increase in COMEX net longs positioning.
Gold rallied by 4% in December 2019. It was trading around $US1,554 an ounce on Comex on January 15. That’s a 2.3% gain so far in 2020 (although it hit a high of $US1,574 on January 7).
“While we believe that there are various reasons for this move, tensions in the Middle East linked to the US-Iran confrontation ultimately pushed the gold price to an almost seven-year high in early January,” the WGC said in the report.
“We expect that investor positioning related to this specific event will likely influence gold’s performance in the near term. But over the medium term, broader financial and geopolitical uncertainty and developments in monetary policy will play a more important role.”
The WGC is not the only gold bull – the $US160 billion hedge fund Bridgewater is also very optimistic and a senior investment manager sees a possible 30% rise in the price to around $US2,000 an ounce.
Greg Jensen is Bridgewater Associates co-chief investment officer. He told the Financial Times this week that that political turbulence around the world along with a widening divide between the rich and the poor will continue to make for a dicey investing climate.
The Federal Reserve will allow inflation to run hot for a while and “there will no longer be an attempt by any of the developed world’s major central banks to normalise interest rates,” Jensen said. “That’s a big deal.”
Put it all together and investors, he advised, should make gold, a cornerstone of their portfolios, as “most of the world is long equity markets in pretty extreme situations.”
The WGC would not disagree.
