Gold 2019: How Prices Got Here
Thursday, 12/20/2018 09:17
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.
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...?
We'll look at what the experts think in Part II...
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