Gold: The World Gold Council (WGC) looks for gold prices to remain strong this year due to expectations for softer monetary policy and continued central-bank buying.
Further, much of the world’s bond yields are either negative or else real yields – adjusted for inflation – are below 1%, not offering investors much return in this market, the council said in an outlook report released Thursday.
Gold has already hit a six-year high in 2019, topping at $1,438.45 an ounce in June. The metal was trading at $1,414.20 as of 8:57 a.m. EDT, down $4.20 for the day so far.
During the next six to 12 months, the WGC said, gold-investment demand is likely to be underpinned by financial market uncertainty and accommodative monetary policy.
“Weaker economic growth may soften gold consumer demand near term, but structural economic reforms in India and China will likely support long-term demand,” the WGC said.
A steep increase in gold prices during June was driven by falling market-set interest rates, higher risk and momentum, leaving investors generally more bullish this year.
“This is evidenced by the positive inflows in gold-backed ETFs [exchange-traded funds], capturing $5 billion or 108 tonnes [year to date], led by European funds, as well as higher net longs in Comex futures, which averaged 369t [tonnes] during the first half,” the WGC said. “In addition, central banks reported net purchases of approximately 247t, equivalent to $10 billion, through May, continuing their expansion of gold holdings as part of foreign reserves.”
The WGC pointed out that expectations for global monetary policy have shifted by 180 degrees.
“Less than a year ago, both Federal Reserve board members and U.S. investors expected interest rates to continue to increase, at the very least through 2019,” the WGC said. “By December, the most likely outcome was for the Fed to remain on hold. Now, the market expects the Fed to cut rates two or three times before the end of the year.”
The European Central Bank and Bank of Japan are also expected to be accommodative.
The WGC listed several risks to the global economy, including potential negative long-term effect of higher tariffs amid trade tensions between the U.S. and its trade partners,
geopolitical tensions between the U.S. and Iran, and uncertainty surrounding the U.K.’s exit from the European Union.
“Investors are facing a conundrum,” the WGC said. “Traditionally, bond holdings provide diversification and hedge their [investors’] stock-market investments. But both high- and low-quality bonds are expensive as yields have generally fallen and credit spreads compressed since 2011.
“In fact, more than $13 trillion of global debt is currently trading with nominal negative yields. And our analysis shows that 70% of all developed market debt is trading with real negative yields, with the remaining 30% close to or below 1%.
“Against this backdrop, alternative high-quality, liquid assets such as gold may help investors balance risks more effectively, while providing uncorrelated long-term returns.”
Allen Sykora Kitco.com |
