WGC: 2018 Set To Be a Positive Year For Price of Gold and Investors
Few have acknowledged gold’s impressive performance, the World Gold Council’s Chief Market Strategist John Reade is optimistic that gold can carry on with its strong performance, well into 2018.
Gold’s had a tough year. This isn’t in reference to price. After all, it has made double-digit gains in some currencies and US Gold futures are up more than 9 per cent. The precious metal has had some harsh criticism from the mainstream media and unfair comparisons to bubblicious assets, such as bitcoin and US equities.
Few have acknowledged gold’s impressive performance in the face of rising interest rates, tightening monetary policies and the ongoing equity bull market. The World Gold Council’s Chief Market Strategist John Reade is optimistic that gold can carry on with its strong performance, well into 2018. Below, we outline how he expects gold to perform next year.
Monetary policy and Fed chairs
Jerome Powell will certainly be one to watch in the coming months. As we explained yesterday Janet Yellen is considered to have been successful in navigating the US economy. Powell is unlikely to rock the boat too much in the eyes of the FOMC but this does not necessarily mean great things for the global economy.You can read more about the likely new Fed Chair Jerome Powell and our thoughts on what he will (or won’t) bring to the table.
Not just the Fed feeding the gold price
Not only are central banks ones to watch when it comes to monetary policy but also when it comes to their influence on banking rules. This was something we’ve covered a lot this year, with the ECB’s proposal to end deposit protection as one of the most important stories of the year. It served as a timely reminder as to why keeping assets out of the banking system was more pertinent than ever.This week we’ve had a rally of central bank announcements. The FOMC increased rates by 0.25 per cent whilst the Bank of England maintained at 0.5 per cent. Both decisions were influenced by inflation rates. For the US, inflation remains ‘stubbornly’ low, whilst in the UK Mark Carney has been forced to explain the above target rate of 3.1 per cent.
With inflation still subdued around the world, we see monetary policy tightening as likely to be gentle, but there are risks, not least the Fed’s planned balance sheet reduction – the first time such an action has been attempted. When it comes to the US dollar strength various charts should not be considered as the only way to read the market. We’ve paid a lot of attention this year towards the ongoing move away from US dollar hegemony.From Russia to China to Venezuela support for the currency is rapidly depreciating. Much of this is thanks to countries establishing trading mechanisms that embrace the borderless and sovereign-free currency of gold bullion.
Positives in the Physical Market
What physical market trends should investors pay attention to in 2018? Income growth is probably the most significant because, over the long run, it has been the most important driver of gold demand. And we believe the outlook here is encouraging. China, the world’s largest gold market, has avoided the hard landing that many were predicting 18 months ago and is expected to grow at a fair clip in 2018, with the consensus forecast at around 6.4 per cent.
The Indian economy is recovering from the shock demonetisation of 2016 and adjusting to the Goods and Service Tax rolled out in 2017. The slowdown in GDP growth last year is expected to moderate, as businesses and consumers adapt. Indeed, India is expected to be one of the fastest-growing countries in the world in 2018, expanding at an even faster rate than it did between 2012-2014.
Stories of strong demand in India and China are usually expected at various times in the year. What no one in the mainstream was prepared for in 2017 was the decade-long evidence that Germans had been boosting their personal gold reserves. Solid income growth in the world’s largest gold markets would undoubtedly be viewed as good news. But other countries are making progress too. Germany’s economy is expected to maintain its momentum and unemployment is anticipated to continue falling, providing support for the world’s third-largest bar and coin market. Across the Atlantic, the US jewellery market, the third-largest in the world, could benefit from continuing economic growth and high consumer confidence.