Gold Outlook 2020

Year 2019 is about to end on a positive note for the yellow metal. Its shine and lustre was maintained as it almost finished the year 13 percent higher. This rally was majorly influenced by central banks, a deterioration and slow growing global economy and escalating geopolitical tensions.

Furthermore, concerns surrounding the US Chinese trade dispute and falling global yields added fuel to the fire. This has occurred in spite of a 1.7% rally in the greenback. Gold reached a high of 1,556 in the first 11-months of 2019 but stalled in September as the Federal Reserve started to ease US short-term interest rates and economic growth started to stabilize.

The length of the trade war and its grinding impact on the U.S. economy even caused the U.S. Federal Reserve to alter its tightening plans. A year ago, the Fed was raising rates. This December, it’s expected to keep rates on hold after three consecutive rate cuts in July, September and October.

The combination of solid US jobs growth and the demand for riskier assets helped stabilize the US 10-year yield which capped the upward momentum in gold prices. Recently (the past 5-years) movements in gold prices and the US 10-year yield have been inversely correlated (moving in opposite directions).

We all know that this year gold has witness some great rallies. But all this doesn’t happen overnight. Gold has achieved this mark gradually. Let’s see how gold made its way here.

From 1987 until 1993 a gentle price downtrend occurred. Prices traded sideways from 1993 until 1996 and were in a downtrend from 1996 until 1999. Prices then traded sideways until 2001, and then embarked upon a powerful 10-year uptrend that produced an all-time high of $1,908.60 in 2011. And then from 2011 until 2015 prices trended solidly lower.

Since 2015 gold prices have been trending up, but in choppy fashion. The monthly gold chart at present is overall technically bullish. That suggests the outlook for gold in the coming New Year is for more of the same—trending sideways to higher in the coming months.

Gold traded lower until May as optimism over a trade deal drove investors into higher-yielding assets. At the same time, the Fed was hawkish although policymakers were divided over whether to continue to raise or hold rates steady.

Gold put in its low for the year in May after the U.S. and China called off trade talks. Risk aversion increased globally as fears of world recession resurfaced amid disappointing macro data in major economies. Equity markets sank worldwide and U.S. Treasury yields dipped to multi-year lows as investor sentiment soured over growing global growth worries.

Gold may have bottomed in May, but its most impressive price move took place during August and September. This was shortly after the Fed made its first of three rate cuts on July 30.

Fear of a recession also helped spike gold prices higher as Treasury yields inverted. However, the move proved to be speculative in nature as the Fed continued to insist the economy was not headed toward recession and its rate cuts were just a “mid-cycle” policy adjustment. It was at this time that the Fed started to talk about limiting its easing to 1 or 2 more rate cuts.

Gold hit its high for the year after the Fed started to talk about easing up on its rate cuts, and the U.S. and China decided to move back to the negotiation table. It’s likely to trade sideways to lower over the near-term as long as the trade talks continue and the Fed holds rates steady.

Expectations of at least three rate cuts and a summer of trade war uncertainty fuelled a four month rally in gold in 2019. With the Fed expected to hold rates steady and the U.S. and China still negotiating, gold may be underpinned over the near-term, but there is no urgency to buy it
When we talk about outlook for any asset, the market always gets divided into two sections- the bulls and the bears.

Let’s take a look as to how each section continues to justify its belief-

THE BEARS BANDWAGON

For the bearish sentiment followers, it is difficult to predict a high sustainable growth for gold. From the recent speeches addressed by Fed Chairman Powell, it can be stated that the Federal Reserve is on hold. The Fed has made it clear that the hurdle rate for additional rate cuts is larger than it has been earlier in the autumn

With the Fed likely on hold, any positive US economic data will continue to lift the 10-year yield which should put downward pressure on gold prices. Additionally, if global growth begins to stabilize and Europe and Asia begin to experience economic expansion, global yields will begin to rise, weighing on gold prices.

Not forgetting to mention the US/Chinese trade negotiations. As of late November 2019, it appears that the US and China are moving closer to a phase 1 deal. While this might spill over into 2020, the deal would reflect a further easing of tensions and the removal of trade tariffs between the two largest economic powers globally.

If there is any positive achievement in trade dispute then gold is likely to head lower, back towards $1300.

THE BULLS BELIEVERS

A lot has changed as a consequence of the United Kingdom was voted in the favour of Brexit on June 23 including a change in gold prices. Gold has surged by 6.5% ever since the Brexit decision, gold has only been climbing higher by each day. And the spill over effect will be witnessed in 2020 too as believed by the bullish supporters for gold. But for this to be true there will be three major catalysts that will play a very important role in pushing gold prices up-

A weakening global economy- Whenever the global economy faces a crisis, gold prices always benefit. The post Brexit economy uncertainties will definitely continue for a while, thus helping gold prices climb higher. A lot of investors and economists have raised questions about the next country to drop out of the European Union ever since the United Kingdom left the European Union. There are talks that the European Union might actually completely dismantle over the next couple of years. The geopolitical uncertainty will definitely send investors rushing to invest in gold.

Rate Cuts- It is a fact that rate cuts lower the value of a currency. When the value of a currency decreases, gold tends to look more appealing as a store of value. ECB has reduced interest rates by -0.4% and there are indications of further rate cuts. And there has been some gossip about UK rate cuts ever since Brexit. Rate cuts, big or small will definitely aid gold prices in climbing higher this year.

Discounted gold- It is evident that gold is trading at quite a discount right now considering the Dow/gold ratio. The Dow/gold ratio can be arrived at by dividing the Dow index by the price of gold. The current ratio of 13.3 is proof that gold is trading at a good discount. Gold will continue trading at a much higher premium in the next few years. The demand for gold is rising in the Asian countries and will continue to do so in the next couple of years.

If the above mentioned catalysts move the way they are supposed to, then gold can show some real bold price movements in 2020.

Prithviraj Kothari is the author of this article. Find more information about Prithviraj Kothari.

Gold 2019- A Quick Look Back

It’s time to look back. 2019 was a great year for gold. Just when the global markets had started writing off gold in 2018, it once again proved its safe haven appeal in the current year.

he third quarter of 2019 was eventful for the gold sector, with two interest rate cuts from the US Federal Reserve, a price rally and subsequent pullback and lots of speculation.

GOLD remained one of the most trusted asset classes the world over. The precious metal was up 15% in value until 3rd week of December.

Brexit,  geo-political tensions, Global uncertainty and US-China trade tensions kept investors worried about rising uncertainty, thus benefitting gold prices which further kept the gold prices well bid in CY2019.

Central banks- In 2018 central banks bought the most gold ever recorded and these robust purchases continued year to date in 2019. Central Bankers across the world kept buying gold, underlining the possibility of tough times in the near future. In the first three quarters, they bought 547 tonnes of gold, which was 12 per cent more than in the previous year

Trade dispute- The year started with the continuation in the trade tensions between the US and China. The first phase of the trade deal did not go through. Trade wars between two major economies of the world, kept pushing gold prices high.

As the Fed shapes US monetary policy, it influences significantly the macroeconomic environment and thus also the gold market. The link between the US central bank and the yellow metal is manifold. First of all the Fed set the federal funds rate which affects short term interest rate and indirectly ht whole structure of interest rates in the economy. Hence when the Fed tightens its monetary policy, interest rates rise. Then they increase faster than inflation, real interest rates go up which is negative for gold, a non-yield-bearing asset. On the contrary, when the Fed eases its monetary policy, interest rates decline. When they decrease faster than inflation, real interest rates go down which is positive for the yellow metal. And this was clearly visible in 2019.

Brexit- Economic uncertainty in the European Union continues to drive safe haven gold investment in Europe after a failed referendum on EU-Ukraine trade relations. Concern over Great Britain’s upcoming referendum on EU membership (set to take place in June) is also straining the markets. If the Brexit were to occur, it would likely spell the eventual demise of the European Union as an institution and set a prerogative for further member state exits. The Fed announced that the implications of a Brexit would be discussed at length in its next meeting. You may have already heard about the Brexit, but if you have not, now you have. This should continue to build momentum in the news as we approach June 23rd. This date is significant because it is the day the referendum will be held to vote whether Great Britain stays or exits the EU, hence the portmanteau “Brexit”.

Slow global growth- Global growth weakened considerably in 2019, falling from 3.2% in 2018 to of 2.6; the main culprits, the trade wars and weakening growth in China. In response, many central banks began to loosen monetary policy thus proving to be positive for gold.

Increasing gold prices compelled investors to add gold to their portfolio. Gold-backed ETF holdings also reached all-time highs by October as investors responded to the high-risk, low rate environment.

As we look ahead to 2020 we believe investors will face an increasing set of geopolitical concerns, while many pre-existing ones will likely be pushed back rather than being resolved. In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels. Within this context, we believe there are clear reasons for higher levels of safe-haven assets like gold. Geopolitical volatility will continue to be part of the background of general uncertainty that has been very favourable to gold for several years now.

There is plenty of support for gold in 2020 and the yellow metal might embark on a long-term sustainable rally in a new era of uncertainty. Gold prices are expected to trade in a range, between $1,450 and $1,600 an ounce next year.

Prithviraj Kothari is author of this article. Find more information about Prithviraj kothari.

Fresh Breakout Levels For Gold

Precious metal prices have had a very strong year

Gold rose substantially above our year-end forecasts of USD 1,400 an ounce.

Gold prices were supported by a general shift in monetary policy of major central banks from tightening to a new round of easing, a decline in government bond yields, an increase in the amount of negative yielding government bonds, weakness in the Chinese Yuan, uncertainty on global growth and global trade front, and Brexit uncertainty.

The majorly influential factor for the yellow metal was the US China trade dispute. Almost the entire calendar year of 2019 stretched over this news for the global financial markets.

But this week we saw so many twists and turns regarding this matter.

First Trump entered in the fray. He dumped US China trade deal and said that it will happen only post US election in October 2020. The biggest losers over this news were DOW and US 10y and obviously the gold prices rallied and crossed$1475 which happened nearly after 4-5 weeks. (inversely proportional to the dollar)

But this was just not enough, when we saw a real example being set in the books of history at least pertaining to US china trade deal. On one side there was news that any trade dispute development will happen only after October/November 2020, while on the other hand there were news in the market on Wednesday that a US China trade deal will happen soon.

This uncertain news created a much ascertained volatility in the precious metals markets. This move is further expected to boost gold traders again fro lows. Once we saw the worst 1 decade monthly ADP jobs data reported at 67k a day. So its tight rope for these $1475-$1480 bracket on recent gold breakout. Once see a departure and sink below $1470 this will be extremely negative for the gold prices. However, till it survives $1470 broadly it’s headed for $1495-$1500.

In Prithviraj Kothari's opinion, Gold is expected to rally above $1480 and silver above $17.20. These can be considered fresh breakout levels.

We expect the US dollar to weaken modestly because of deterioration in longer-term fundamentals and weakness in near-term cyclical dynamics. Gold tends to rally when the dollar declines and we think this relationship will hold in the coming years.

Precious metal prices have rallied strongly. Long term outlook for gold is positive. But wait for a correction to position for higher prices.

Gold Remains RE-Committed

Gold has risen more than 13% this year mainly due to the trade dispute driving demand for safe assets

The policy U-turn by central banks suggests they do not have full command over the global economic situation. This, alongside an unpredictable White House, the rise of populism, de-globalisation, de- dollarization and questions over the future of capitalism itself, have led to a feeling of instability from which gold has certainly benefited.

But in these uncertain times, gold has once again proved its worth. It appears that gold has been one such haven investment and investors will also agree to this. Where on one hand the FTSE 100 index gained just 2%   over the past 12 months to mid October, on the other hand gold has gained 21% in the same time frame.

The recent strength comes after a wobbly few years for gold, which have seen it struggle to break above $1,350. Its rise coincides neatly with 2019’s falls in US interest rates.

In Prithviraj Kothari's opinion, After the thanksgiving note, there was a good positive opening mostly in Asian markets as China indicated that they are still in the fray of a deal with the US for this phase, deal to happen so beginning of the month is full of data pack from US and EU.

Further, there was a tense kind of situation in the EU wherein countries demanded their gold back.

Just a few short days after Poland’s government touted its economic might after completing the repatriation of 100 tons of the barbarous relic; and with Hungary's anti-immigrant Prime Minister Viktor Orban also ramping up holdings of the safe-haven asset to boost the security of his reserves; more Eastern European nationalist leaders are demanding their country's gold back on home soil.

The various leaders have a recent example to prove their fears right as the Bank of England refused to return Venezuela’s gold stock over political differences.

In spite of the geopolitical issues, gold price fell on Monday as investors turned to riskier assets on signs of economic growth following reports of an expanding Chinese factory sector and as a rising dollar reduced demand.

Spot gold was down 0.5% at $1,456.70 per ounce by during Mondays’ trading hours, having earlier touched it’s highest since Nov. 22. U.S.

Positive data released from the Chinese markets, unexpected expansion numbers in factory activities during November, led to a spur of investor in the equity markets as further positive releases were expected from other countries.

Any positive data released, creates optimism in the market thus giving confidence to investors who then move to riskier assets which in reduce the safe haven demand for the yellow metal.

Investor demand for gold was further pressured by the rising dollar, which makes dollar-denominated gold more expensive for buyers using other currencies.

Trade dispute between the United States and China has supported gold, with reports that a preliminary agreement has now stalled because of U.S. legislation supporting protesters in Hong Kong and Chinese demands that the United States roll back its tariffs as part of phase one deal.

Nonetheless, Gold has been the star performer of 2019, but does the gold rush have further to run?

The basics are still quite supportive, this lull is not going to last too much longer. Maybe into yearend we will see gold prices recommit the uptrend and is expected to trade between $1,450-$1,500.

Gold Expected To Bounce

November wasn’t a great month for the yellow metal as prices were down almost 4%. This was the biggest drop seen since November 2016. This decline was seen following positive news about a deal between Beijing and Washington which further weakened demand for the safe-haven metal.

Hopes for an interim U.S.-China trade deal buoyed demand for riskier assets.

There was not much clarity as to where will these trade talks lead to, hence the volatility was reflected in the trading prices.

Dampening gold prices pushed the dollar prices high as both are inversely proportional.

U.S. President Donald Trump on Wednesday signed into law congressional legislation backing protesters in Hong Kong, prompting Beijing to warn of “firm countermeasures”.

The Hong Kong protest went uglier as the reports suggest, thus souring the mood and thereof on their indices. Friday being half session, the US and data flow once again big here are few warnings from economists when they say that Hong Kong is the biggest political risk for financial markets. Today there is rupee traction on the weaker side.

Gold considered a safe store of the value during economic or political uncertainties, has gained more than 13% this year, mainly due to the tariff dispute.

But this week gold once failed to make headway through USD $1,460 - $1,465 on Wednesday, sold lower on trade headlines and strong U.S. data. It was generally one-way traffic throughout the session, as the yellow metal skewed offered in Asia, before accelerating declines in Europe/U.S. hours.

If the yellow metal crosses the $1500 an ounce mark then there is further potential for a price rise. But if it breaks below $1445 then a significant correction is expected which will result in further losses for gold prices.

A break above $1,500/oz would suggest the potential for additional upside in prices. In contrast, a break below $1,445/oz would point to a more significant correction underway, and we would expect further losses for gold prices.

Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.

In Prithviraj Kothari's opinion, Gold seems to be under pressure though it may hit the lower side target near 37500 and should give little bounce towards $1470 in the international markets where traders can sell for moderate gains.