Volatility in equities, global growth concerns may turbocharge yellow metal next year
Wild swings in equities, a softer dollar and concerns over slowing economic growth may push gold prices towards $1,400 (Dh5,138) per ounce in 2019, experts have said.
Gold prices hit a six-month high on Friday as concerns over global growth and a partial government shutdown in the US fuelled risk aversion, prompting investors to seek refuge in the metal.
In Dubai on Saturday, 24k gold was at Dh155 per gramme.
Bank of America Merrill Lynch strategist Michael Widmer said in recent report that the markets have been “close to maximum bearishness” on precious metals. Gold was largely sidelined as a go-to asset class throughout most of the year.
As the US Federal Reserve maintained its course towards a neutral policy and US growth remained strong, equities outshined yield less safe havens. The Bank of America Merrill Lynch report said the golden triplets – US twin deficits and China money easing – could turbocharge gold in 2019.
“Gold prices could spike quickly to a $1,400 an ounce high next year if global markets perceive that the Fed is about to blink in its dual monetary tightening policy of higher Fed funds rates and a balance sheet reduction [quantitative tightening],” they noted.
Ted Stephenson, professor at George Brown College in Toronto, said since mid-August gold has been on a rising trend and the factors contributing to that are likely to continue. “Gold will act as a flight-to-safety asset if stock markets continue to weaken and financial market uncertainty remains,” he said.
“Geopolitical factors, the chance for a larger stock market correction and a Federal Reserve policy that could keep the US dollar from further strengthening could all contribute to a strengthening in the price of gold.”
Davis Hall, global head of forex and precious metatals at Indosuez Wealth Management, said that he still maintained a ‘buy on the dips and hold’ approach as it appears the US economy has passed it’s ‘good as it gets’ zenith leading inevitably towards a reassessment of FOMC hikes during 2019.
“Gold should see renewed demand on weakness between $1,180 [Dh4,330] and $1,210 [Dh4,440] with key resistance at 1,310 [Dh4,807]. We do not exclude a potential spike towards 1,360 [Dh4,991] next year if the VIX index [a measure of volatility] pops up anew,” Hall said.
“Greater mean reversion of volatility to higher norms, coupled by less induced oil-price inflationary concerns will see gold benefit over time as net production peaks into 2019,” he added.
Vijay Valecha, chief market analyst at Century Financial, said 2019 could be bullish for gold as the pace of rate hikes is slowing down and now the Fed is suggesting that there will be only two rate hikes in 2019 instead of three.
“Also, we expect the US economy will gradually run out of steam and that will turn the Federal Reserve more dovish, which will weaken the dollar. In a slowing economy, we see a plateau in equity markets and that will lead some investors to pay more attention to gold. We don’t see a wholesale rush into gold, but it will be enough to push prices higher. Gold traders also seem to be thinking the same as prices have recovered after the initial drop,” he said.
“For the short term, $1,285 [Dh4,715] per ounce is a resistance… we expect gold prices to move up to $1,360 [Dh4,991].”