Gold Market In 2019: WGC Versus LBMA

Both the WGC and LBMA published outlooks for the global economy and gold market in 2019. Who is right?

WGC’s Outlook for Gold in 2019

Let’s start from the World Gold Council (WGC) which published its 2019 outlook on January 10th. As befits the organization representing industry’s interests, the WGC is bullish on gold prices. No surprises here. According to the institution, the following trends will mainly shape the gold market in 2019: financial market instability, monetary policy and the US dollar, and structural economic reforms.

First, the WGC expects higher levels of risk and uncertainty this year, due to the elevated market volatility, rising political and economic instability in Europe (think about Brexit, social unrest in France, the populist government in Italy, or secessionism in Spain), and potentially higher inflation from protectionist policies. All these factors are said to increase the likelihood of a global recession, nudging investors toward gold as an effective portfolio diversifier and a safe haven.

Second, the WGC admits that, although market risk will likely remain high, higher interest rates and US dollar’s strength could limit gold’s upside. However, the organization believes that the greenback may be losing steam, while the positive effect of higher federal funds rate on the dollar will diminish as the Fed’s monetary policy stance becomes neutral.

Third, the WGC argues that pro-growth economic reforms implemented in India and China would support consumer demand and, thus, gold prices. This claim is the weakest – and we refuted many times the argument that consumer demand drives the gold prices. Actually, the opposite is true, i.e., consumers are price-takers, not price setters.

However, we could sign under the previous two points. We also believe that the dollar’s upside is limited, while the pace of Fed’s tightening is slowing down. And we do agree that the level of political and market risks is somewhat higher than last year, although we would not overestimate the Europe’s weakness. Despite its fragility, it still grows.

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