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Demand for Physical Gold Expected to Be Strong Moving into 2019

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World Gold Council chief market strategist John Reade projects healthy demand for physical gold in 2019 and said any kind of economic slowdown could boost demand — and the price — significantly.

Mining.com published recent comments by Reade, who noted factors similar to those that drove gold in the last half of this year will to continue to impact the market in 2019.

Gold trended downward from mid-April, hitting the year’s low around $1,160 in mid-August as the dollar gained strength. As Reade explained, the price rebounded in October as risks in emerging markets spilled over into more developed economies, the impacts of the trade war began to trickle through the US economy and global stock markets sold off. While gold hasn’t regained highs reached earlier in the year, it has traded comfortably above $1,200 over the last couple of months.

Reade said he expects consumer demand to be solid moving into 2019, driven by China and India.

Physical buyers, whether they are in China or India, which together make up half of consumer demand for the commodity should be solid, bolstered by good growth in these two important economies.”

We’ve focused on increased demand for gold in the technology sector this year, noting a number of important developments in the medicine and electronics. Reade said he expects tech and industrial demand to remain strong.

Technology demand, which has grown steadily over the last eight quarters, should continue to perform well as the world becomes ever-more connected digitally.”

We have also reported on increased central bank buying, especially in countries like Russia that hope to minimize their dependence on the US dollar. On net, central banks globally added 193.3 tons of gold during the first half of 2018, according to World Gold Council data. That represents an 8% increase over 2017. Reade said he thinks even more central banks could jump into the market next year.

Central banks, whose collective buying has been one of the standout positive surprises this year, are widely expected to continue to buy gold next year and it’s possible that additional central banks will join the list of buyers, as seen in 2018.”

As Mining.com noted, all of these demand sources are not only relevant to gold’s performance next year, but also underpin its long-term performance.

Reade said the most important factor driving the price of gold in 2019 will continue to be the performance of the US dollar. If US stocks recover, the economy grows and the Federal Reserve continues its monetary policy tightening, the dollar will likely remain strong and the price of gold will face significant headwinds.

But this scenario seems unlikely.

As Peter Schiff has said repeatedly, the stock market is already likely in a bear market. In a recent podcast, Peter noted the yield curve between the 2-year and 5-year Treasuries, and 3-year and 5-year Treasuries both inverted recently. This is widely viewed as a signal that the economy is slowing down.

The market is saying it thinks sometime two or three years from now, the Fed is going to be cutting rates because the economy is going to be in a recession. And so people think yields will be lower three years from now then they are today because they think the economy will be into a recession at some point in the future.”

According to a recent Reuters poll of more than 60 currency analysts, the majority believe, “the dollar, which has enjoyed an unrivaled surge against its peers this year, will be undermined in 2019 on increasing concerns about slowing US economic growth.”

Given these dynamics, gold may well see a boost in 2019 — and it could be significant. As Mining.com put it:

If US growth slows, as the sugar rush from the tax-cuts passes or if trade wars or tighter monetary policy create further drag, then investors may continue to seek gold. Further, if the economic slowdown is rapid or if risk assets fall sharply, investment flows into the commodity could match those seen during the 2008-2009 financial crisis.”

Reade said given the market dynamics, now is a good time to consider buying gold.

With it currently trading at less than two-thirds of its all-time high, in contrast to the lofty valuations of US stock markets, we believe now is a very good time to consider the role of gold in a portfolio. As a high quality, liquid asset, with the potential to deliver strong returns, and as an effective diversifier that works particularly well when other assets fall sharply, gold has historically proven to enhance the long-term performance of investment portfolios.”

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