Gold News

Gold 2019: How Prices Got Here

2019 gold forecasts start with 2018's strength...
 
IF YOU'RE already invested in gold, then frankly I blame this on you, writes Adrian Ash at BullionVault.
 
Yes, you.
 
Because while so much was stacked up against gold prices in 2018...
 
...and while new investors have almost vanished...
 
...existing investors have refused to sell at these prices.
 
To recap, gold has rarely looked so boring as it did in 2018.
 
Priced in Euros or British Pounds, gold has crept back up to where it ended last December.
 
Top to bottom, it has moved scarcely 10% since New Year.
 
The move in Dollars was greater, but not much. And overall the metal today trades 5% lower than it ended 2017 for US investors.
 
Chart of gold in USD (right), GBP (left) + EUR (left). Source: St.Louis Fed via LBMA
 
Plain fact is, gold has done remarkably well in 2018.
 
How so?
 
First, demand sank this year.
 
Add together jewellery, central banks, technology, investment and dental demand, and the first 9 months of 2018 saw the lowest level of gold buying since the global recession of 2009 if not before.
 
Most notably, big-money investors shunned the metal.
 
That kept the size of gold-backed ETF trust funds from growing. The largest fund – the giant GLD traded on the New York Stock Exchange...shrank almost 10%.
 
Private investors also kept away from gold, knocking coin and bar sales down to multi-year lows.
 
Indeed, the volume of Google searches to "buy gold" fell and fell again...
 
...dropping to its lowest since mid-2007, eve of the global financial crisis.
 
On the other side of the equation, mine supply has in contrast continued to grow.
 
Global gold-mine output is heading for yet another new all-time annual record in 2018...
 
...because a drop from No.1 miner China (thanks to tighter environmental rules) has been more than outweighed by higher gold prices in local currency boosting output in No.2 Australia, No.3 Russia and No.5 Canada.
 
Away from the physical market meantime, hedge funds and other speculators bet against gold prices like never before.
 
Week after week starting July, data from US regulator the CFTC showed the 'Managed Money' category holding a bearish position – net of that group's bullish bets – in Comex gold futures and options.
 
No, those Comex contracts don't involve any gold.
 
And no, those hedge funds rarely predict the future. More often they just jump on a passing bandwagon...betting on a trend already in motion.
 
But the tail can often wag the dog, at least in the short term.
 
Because if prices for a promise of gold in 12 months' time are falling, then the price of actual gold today will typically fall too.
 
Yet gold has dropped only 5% for 2018 in Dollar terms. And that US Dollar has been another big headwind...
 
...rising against other currencies for the 5th year in six...
 
...thanks of course to the US Fed continuing to raise Dollar interest rates, yet another classic killer for gold prices.
 
So are rising stock markets, which this year neared or set fresh all-time record highs pretty much everywhere across the Western world.
 
Put all this together, and gold in 2018 faced:
  • weak demand
  • bearish speculators
  • a rising Dollar
  • rising interest rates, and
  • rising stock markets.
So how come prices have held so firm like this?
 
Personally I think we can thank politics.
 
Because while the financial back-drop for bullion was so poor, 2018 brought the start of a US-China trade war....
 
...worsening Western relations with Russia...
 
...turmoil over crude oil supplies and pricing...
 
...and yet more fracturing of Western democracy 10 years after the global financial crisis.
 
These risks and problems kept existing investors from selling out, because who abandons their insurance right when it looks like they're about to need it?
 
If that is what kept gold prices so firm in 2018, will it boost gold and the other precious metals in 2019...?
 

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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