Potential for growth and heightened risk in 2019
We expect that many of the global dynamics seeded over the past two years and the risks that became apparent later in 2018 will carry over. And with them, we see a set of trends developing that will be key in determining gold’s demand. In turn, their interplay will be most relevant for gold’s short- and long-term price behaviour (Focus 1).
- Increased market uncertainty and the expansion of protectionist economic policies will make gold increasingly attractive as a hedge
- While gold may face headwinds from higher interest rates and US dollar strength, these effects are expected to be limited as the Fed has signalled a more neutral stance
- Structural economic reforms in key gold markets will continue to support demand for gold in jewellery, technology and as means of savings.
1. Financial market instability
Globally, there were net positive flows into gold-backed ETFs in 2018. While North American funds suffered significant outflows in Q2 and Q3, this trend started to shift in Q4 as risks intensified (Chart 2).
We believe that in 2019 global investors will continue to favour gold as an effective diversifier and hedge against systemic risk. And we see higher levels of risk and uncertainty on multiple global metrics:
- Expensive valuations and higher market volatility
- Political and economic instability in Europe
- Potential higher inflation from protectionist policies
- Increased likelihood of a global recession.