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Why 2019 could be a stellar year for gold

Why 2019 could be a stellar year for gold

Release Date:  Friday, December 21, 2018


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Gold and Silver Prices

Gold steadied on Friday and closed higher for the week as volatility in the equity markets- underpinned by the Fed's policy message- and concerns about global growth kept interest in the safe-haven asset.

"Gold has risen about 1.8 percent so far this week. The metal, which draws investors during times of political, economic and financial uncertainty, is headed for its best quarter since March 2017, up 5.7 percent.

"'Falling stock markets and higher market volatility appear to be key to whether gold can extend its rally,' Societe Generale analyst Robin Bhar said in a note.

"Gold is trading above its 200-day moving average of around $1,252 an ounce, which analysts said was a bullish signal.

"The U.S. Federal Reserve's commitment to retain the core of its plan to tighten monetary policy has rattled stock markets and has put pressure on the dollar recently, making bullion more attractive." ("Gold steadies near 6-month peak on global economic growth concerns," Swati Verma, Reuters, 12/21/18.)

Gold ended the week up $8.10, closing at $1,255.60. Silver ended the week up $0.01, closing at $14.60.

Why 2019 could be a stellar year for gold - Chung

Gold looks bullish next year no matter what the economy will look like according to an analyst.

"Gold (GC=F) has gotten a boost over the past three months, rising more than 4%, as investors flock to so-called 'safe-haven' trades, and the commodity is headed even higher in 2019, according to strategists.

"'Volatility has reemerged across markets generally - commodities, equities, etc. If that volatility persists, it will be key. It is going to push investors to perceived safe havens like gold,' Chris Louney, commodities strategist at RBC Capital Markets, told Yahoo Finance.

"Fears of an economic slowdown coupled with trade worries between the U.S. and China have sent the U.S. stock market tumbling since October. All three of the major indices closed in correction territory, or down more than 10% from their recent highs, on Friday.

"'If U.S. growth slows, due to a sugar rush from tax-cuts as well as trade wars, then investors may continue to seek gold. Meanwhile, a rapid economic slowdown could see gold flows match those seen during the 2008-2009 financial crisis,' John Reade, chief market strategist at the World Gold Council, said.

"Mikhail Sprogis, Goldman Sachs precious metals analyst, said the firm believes safe-haven trades like gold will continue to rise next year, whether or not the economy actually slows down. 'Our bullish outlook is driven by the expectation of a pick up in "fear" related investment demand for gold as the U.S. economy slows down and late cycle concerns mount. Even though we as a bank think that this cycle has room to run, this doesn't prevent people from becoming increasingly afraid,' he told Yahoo Finance.

"Furthermore, investors are paying increased attention to the Federal Reserve as the central bank gears up to kick off a two-day meeting on Tuesday.. the real focus will be on Chairman Jerome Powell's language for next year's rate hike plan.

"'We expect three rate hikes next year versus consensus of one to two. We think that this will not prevent gold from increasing. Moreover, we would like to highlight that negative correlation between gold and 10-year real rates tends to reverse during late stages of the hiking cycle as higher rates themselves can lead to increased financial market volatility and growth slowdown concerns,' Sprogis said.

A strong dollar

"A strong dollar (DX=F) remains a headwind for gold in the coming year, according to Sprogis. 'The gold market continues to be hurt by a strengthening dollar. A strong dollar affects gold by reducing dollar purchasing power of world ex-U.S.,' he explained. The price of gold and the U.S. dollar are inversely correlated. When the dollar's value falls and loses value, investors often turn to alternative investments like gold.

"Despite headwinds like a strong dollar, both Sprogis and Louney think gold has more room to run in 2019. Goldman Sachs has an end of 2019 price target of $1,350 for gold, while RBC has an average 2019 forecast of $1,338." ("Why 2019 could be a stellar year for gold," Heidi Chung, Yahoo Finance, 12/17/18.)

Gold: Worst- & Best- Case Scenarios 2019 - Aslam

Gold prices are likely to go as high as $1600 in 2019 as more issues are surfacing in the U.S. economy.

"Gold prices hit a 1-week high today and steady they go. Since the price made a low of $1,046 back in 2015, it has never looked back. As of today, it is trading at $1,248. Having said this, the price is down by -4.05% year-to-date, but the daily chart shows that the trend is still skewed to the upside. The primary reason we saw some losses in 2018 was the hawkish monetary policy adopted by the Federal Reserve Bank.

"The Fed has increased the interest rates three times so far this year and another rate hike is firmly on the cards when the Fed meets on Wednesday. Another hike will push the interest rates in the U.S. to their highest level in a decade. These interest rates hikes have pushed the dollar index towards its peak point (97.71) for the year. In other words, the dollar index has had one dominant trend this year- the uptrend.

"The greenback and gold have an inverse relation. The reason we have not seen strength in the inverse relationship between the yellow metal and the dollar is mainly because of the feeble world economic growth. The tumult in Paris, the Brexit chaos and the trade war between Washington and Beijing have crippled optimism among investors.

"Going into 2019, the yellow metal is likely to shine more as cracks have started to surface in the U.S. economy. The U.S. equity markets are on track to record the worst performance in a decade… The housing market, a leading indicator to gauge the economic health of the country, is showing some serious concerns.  Business investment has dried up in the third quarter and effects of tax cuts by Trump administration have almost vanished.

Can the U.S. economy end up in recession in 2019?

"This is the question that many will be asking. Under the current circumstances, it may not be far stretched to say that if the recession doesn't see the daylight in 2019, it is likely to see it in 2020. Having said this, it is vital to look back at history and see how they have dealt with a similar situation…

"Investors and the Fed will be observing the economy very prudently and this will dictate the volatility for the gold price. Looking at the historical chart of gold, it shows that volatility is ready to pop. The explosion in yellow metal's volatility is due for some time as it is currently sitting at a historical low level. Investors are already worried about global growth and if these concerns change into a global recession, the above scenario can easily come in to play.

"All in all, it is highly likely that we will see an uptrend for gold and factors such as feeble economic growth, escalation in the geopolitics in Europe, the Middle East and stronger threats to Trump's presidency could drive the price way above the $1600 mark in 2019. However, a controlled Fed policy and a stable economic growth may only push the price towards $1400." ("Gold: Worst- & Best- Case Scenarios in 2019," Naeem Aslam, Forbes, 12/19/18.)

Gold jumps 1 percent as Fed stance compounds growth worries - Reuters

Gold brushing off negative news of another rate hike and gaining momentum again rapidly generally indicates the market may continue to go higher. 

"Gold jumped more than a percent on Thursday, boosted by a crumbling dollar and as sliding stocks prompted an influx of safe-haven bids after the U.S. Federal Reserve's monetary policy stance augmented concerns about slowing global growth.

"Spot gold climbed 1.2 percent to $1,258.08 per ounce by 11:32 a.m. ET, having reached $1,262.01 earlier in the session, a peak since July 9…

"'With the Fed being more hawkish (than expected), you would think the economy is doing really well but that's not the case,' said Phil Streible, senior commodities strategist at RJO Futures in Chicago. 'Equity markets are selling off, oil futures are continuing to decline as well and this is prompting investors' flight to safety. There are also a number of other factors and it seems like gold has a pretty good wind behind the sails for it to move higher.'

"The metal regained momentum after a brief dip on Wednesday, immediately following the Fed announcement to raise interest rates for the fourth time this year, with the central bank also signaling 'some further gradual' hikes.

"'When it brushes off negative news like it did yesterday, it generally indicates the market should continue to head higher,' Streible said.

"Bolstering appeal for gold was a slide in the greenback, which hit a one-month trough earlier in the session as a not-so-dovish rate hike indication by the Fed increased market conjecture that the country's economy may be running out of steam.

"Concerns about global growth also seeped into the stock markets following the announcement, as worries of recession inflated, impairing risk sentiment.

"'The subsequent sell-off in stocks and drop in bond yields soon attracted renewed buying interest and given the troubled economic outlook into 2019, we see the upside potentially for gold having been strengthened further by the Fed's decision,' Saxo Bank analyst Ole Hansen said.

"Pointing to improved appetite for the metal, holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped to their highest level in four months this week." ("Gold jumps 1 percent as Fed stance compounds growth worries," Reuters, CNBC, 12/20/18.)

Gold settles at a nearly 6-month high as risky assets get rocked - Saefong

Market instability and future Fed rate raises may cause gold to continue going higher.

"Gold climbed on Thursday to its highest settlement in almost six months, marking a recovery from the after-hours decline for the precious metal that followed an expected Federal Reserve rate increase.

"Gold for February delivery on Comex GCG9, +0.80%  rose $11.50, or 0.9%, to settle at $1,267.90 an ounce-the highest for a most-active contract since June 25, according to FactSet data. Prices have gained about 3.4% month to date.

Gold had held its early gain after a mixed batch of economic releases early Thursday. The SPDR Gold Shares GLD, +1.68% exchange-traded rose 1.8%.

"The Fed said it decided to hike its target for the federal-funds rate by a quarter point to a range between 2.25% and 2.5%. The central bank also said, however, that it has now penciled in two rate hikes in 2019, not the three moves seen in September, and it still forecasts just one more hike for 2020.

"'While the Fed appears to have walked back future expectations of rate hikes, they did little to change their constructive economic outlook,' said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. 'Gold was under pressure [post-Fed decision] as higher real interest rates continue to provide pressure to investors.'

"Higher rates tend to dull the appeal of precious metals, compared against assets that offer a yield. Moreover, an indication that U.S. rate setters will tap the brakes as it attempts to normalize policy may weaken the dollar and provide runway for dollar-pegged gold, which is more attractive to buyers using other monetary units.

"One measure of the buck, the U.S. Dollar Index DXY, -0.70% was down 0.8% at 96.263 Thursday. The dollar was on track for its worst week since February.

"'If the U.S. dollar index has topped, as many influential Wall Street voices think it has, gold could make a straight line to $1,360 before it meets resistance,' said Michael Armbruster, managing partner at Altavest. 'It's quite possible we could get there by the end of January. Gold can move quickly in a short period of time when sentiment changes.'

"Stocks, meanwhile, traded broadly lower Thursday… 'The stock market looks vulnerable to another large leg lower,' said Peter Spina, president and chief executive officer of 'A larger drop that over the coming several weeks will heighten recent fears, which have been absent for some years. This will all feed more interest back into the gold sector.'

"And over the next few months, 'gold will begin to respond to more investment interest from Wall Street ... as [investors see the future falling rate forecasts by the Fed and the continued instability in various markets build.' Spina said. 'Gold is highly under owned and miners are cheap.'" ("Gold settles at a nearly 6-month high as risky assets get rocked," Myra P. Saefong, MarketWatch, 12/20/18.)