Some Key Reasons Gold Should Shine in 2018

The last few weeks have been tough on gold. If you have a short-term mentality, you might even think the gold market has gone bearish. But as World Gold Council chief market strategist John Reade pointed out in a piece he wrote for the December issue of WGC Gold Investor, 2017 has been good for gold. And he sees some key reasons to believe 2018 will be as well.

The gold price has moved ahead this year, despite rising US interest rates and a persistent bull market in equities. Looking ahead, there are several reasons to believe that gold could maintain upward trajectory. Investor attention may have been focused on US equity markets, technology stocks and cryptocurrencies this year, but gold has still had a decent 2017, delivering double-digit growth in the first 11 months alone. The strong performance is particularly noteworthy in a year when the US has been hiking rates and equities have remained in favor.”

Reade lists several factors he thinks will be bullish for gold in 2018.

First, he takes a similar view others seem to be coming around to in the mainstream – that the US stock market can’t continue going up forever.

We believe that the bull market in US equities has reduced gold’s appeal in 2017: an end to that trend could reignite demand for gold. The direction of the US dollar could also be important: if 2017 marks the end of a multi-year period of US dollar strength, gold could benefit from that tailwind, unlike the headwind that it has experienced since 2001.”

More significantly, Reade sees increasing global income as a major plus for gold.

 Over the long run, income growth has been the most important driver of gold demand. And we believe the outlook here is encouraging.”

Reade specifically cites the potential for income growth in China and India, the two leading consumers of gold globally. China’s income growth is expected to come in at around 6.4% in 2018. And  India is expected to be one of the fastest-growing countries in the world next year, expanding at an even faster rate than it did between  2012-2014. 

Reade also mentions Germany, a country in the midst of a budding love affair with gold.

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.”

When you combine these factors with fundamental supply and demand dynamics in the wake of shrinking gold production, there are solid reasons to expect gold to continue climbing upward in the upcoming year.

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