Many competitors for gold in 2018

Gold began 2018 on a firm note on Tuesday after prices hit their highest in more than three months, supported by technical factors after breaking above $1,300 an ounce last week.

Spot gold rose 13 percent last year to mark its best annual performance since 2010. A wilting U.S. dollar, political tensions and receding concern over the impact of U.S. interest rate hikes fed the rally.
The greenback, in which gold is priced, had its worst performance since 2003 last year, damaged by tensions over North Korea, questions over Russian involvement in U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.

 The dollar’s drop to three-month lows versus a basket of currencies on Friday lifted gold to its highest since mid October. In the last couple of weeks, trade has been relatively thin, yields have been under pressure and the dollar as well, so gold has profited from that.

Preceding real yields, dollar is the most important driver for gold. And it was the dollar’s weakness, which even a Fed rate hike was unable to pull down gold prices. Even though the rates are hiking, the dollar I not benefiting from it.

On the other hand, Gold has clearly benefited from lower U.S. yields and a much weaker U.S. dollar into the year-end. Gold has risen more than $70 from nearly five-month lows hit in mid-December.
More than half of the $70 rally came in the last week, during the holiday period.

However, on Wednesday there was a slight halt to this rally as we saw the dollar strengthening over the release minutes of the FOMC meeting (that was geld on Dec 12-13)

The Fed’s minutes acknowledged the U.S. labor market’s solid gains and the expansion in economic activity, even as they affirmed policymakers’ worries about persistently low inflation. That suggested the central bank will continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Fed officials also discussed the possibility that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to rise, leading to some dollar-buying, analysts said
The dollar rallied on Wednesday on upbeat U.S. manufacturing and construction data and after minutes from the Federal Reserve’s last policy meeting showed the central bank remained on track to raise interest rates several times this year.

Snapping a three-week losing streak, the dollar hit session highs against the euro and yen after the minutes from the Fed’s Dec. 12-13 meeting. The dollar index posted its largest daily gain in more than two weeks.

Gold eased from an earlier 3-1/2 month high on Wednesday and was on track for its first day of losses in nearly three weeks as a firmer dollar pressured assets priced in the U.S. currency.

Currently, gold seems to rise steadily in 2018. There are many important competitors for gold that will surely play a significant role in its price movements-
• Equities- The biggest competition for gold in the New Year will be equities, but if gold prices continue to hover over $1,300 then investors would surely be interested in diversifying their portfolio towards the yellow metal.
• Bond yields- Another important factor for gold next year will be bond yields, but noting that he sees limited impact in the long-term.
• Inflation- With inflation expected to rise, that investors need to be more clear as to real interest rates will push higher or remain at current low levels.

Looking ahead, it is difficult to determine if gold will hold these holiday gains when traders come back in full force in the New Year.

Gold - Past performance future prediction

As the year comes to a close, let’s take a look back at the main gold trends this year, from the impact of US Federal Reserve interest rate hikes to widespread geopolitical uncertainty, how it performed and how the outlook is in 2018.

Though gold made double digit gains in some currencies, it did have a tough year. The precious metal has had some harsh criticism from the mainstream media and unfair comparisons to lubricious assets, such as bitcoin and US equities.

Few have acknowledged gold's impressive performance in the face of rising interest rates, tightening monetary policies and the ongoing equity bull market.

When we see gold’s performance over the past 12 months, I think it would be better to divide it over 4 quarters to get an enhanced understanding of gold, its performance and the reason behind its volatility.

Quarter 1- The main driving force for gold prices in this quarter was Trumps uncertainty.
Concerns about US President Donald Trump and anticipated rate hikes from the Fed caused worries, as did the Brexit process and European elections. All of those factors combined in the first three months of the year to drive the yellow metal’s price
During the first quarter, gold traded between $1,184.62 and $1,257.64.
The gold price made its eighth Q1 gain in 10 years in the first quarter of 2017, buoyed by safe-haven demand from anxious investors.
Early in 2017, GFMS noted a gradual rise in gold demand complimeeyed by a reduction in global mine output, resulting in smaller surplus in 2017. This supply demand gap further reflected a bright year for gold and gold stocks in particular in the first quarter.

Quarter 2- Herein steps the Fed, whose hawkish tone influences the market and gold prices in particular.
The gold price stalled in the second quarter of the year as concerns about geopolitical tension faded away. The Fed increased interest rates for the second time of the year in June — that hurt the yellow metal as gold is highly sensitive to rising rates.
Demand for gold dropped 14 percent year-on-year in the first half of 2017 due to a sharp fall in ETF inflows, according to the World Gold Council (WGC). Total global demand for gold reached 2,003.8 tonnes from January to June, down from 2,318.7 tonnes in the same period the year before.
The yellow metal traded between $1,218.80 and $1,293.60 during the quarter.

Quarter 3- a Series of uncertain events leading to geopolitical crisis once again put gold on the top list of safe haven assets.
The gold price gained more than 3 percent in the third quarter, even though September was one of its worst months of the year.
A weaker US dollar and geopolitical tensions between the US and North Korea supported gold over the quarter. Gains were offset by the Fed’s hawkish tone, which pointed to another interest rate hike later in the year and three more in 2018.
At the end of the quarter, most analysts agreed that worldwide political developments, as well as the US dollar, were set to be key drivers for the gold price for the rest of the year.
Gold traded between $1,212.20 and $1,348.60 during the quarter.

Quarter 4- The most awaited Fed meeting becomes the focus globally. 
The gold price remained almost neutral in the last quarter of the year, and was on track for a quarterly loss of less than 1 percent. Trump’s new Fed chair nomination and the expectation of another rate hike in December were some of the key factors driving prices during the period.
The yellow metal has been trading between $1,285.50 and $1,298 during the quarter.
So as we saw that in spite of witnessing volatilities, 2017 was a tough yet good year for gold.
Now what we need to pay heed to is that whether the above mentioned factors will continue to influence gold in 2018 or do we have many more surprise for the yellow metal in the following year-

The gold price is likely next year to continue the rise it commenced two years ago. The main contributory factors here remain the extremely

Loose monetary policy pursued by nearly all key central banks, resulting in ongoing very low to negative interest rates.

Political uncertainty is also likely to be a constant feature throughout the year. One example worth mentioning is the difficult process of forming a government in Germany, the outcome of which remains unclear. Parliamentary elections will probably be held in Italy in the spring of 2018 and could spark renewed unrest in the Euro zone

Brexit is likely to become an increasingly hot topic during the course of the year if agreement is still not reached in the negotiations between the EU and the UK and the UK’s disorderly exit from the EU becomes more likely in the spring of 2019.

 That the second year of Donald Trump’s presidency in the US will run any more smoothly in terms of domestic or foreign policy than the first one did.

The implementation of the tax reform and the possible implications for monetary policy are likely to keep the market just as much on tenterhooks as the ongoing investigations into contacts between Trump’s election campaign team and Russia.

A prediction of the future approach of the Fed towards the monetary policy gets difficult as, Trump will next year make several new appointments to the Fed’s Board of Governors.

What is more, midterm elections to the US Congress will be taking place in the autumn of 2018, which is likely to increase pressure on Trump and the Republicans to implement the tax reform. Otherwise there is a risk of the high-flying US stock markets correcting, which would benefit gold

The numerous geopolitical crises should likewise generate latent uncertainty. These include in particular the North Korea conflict, the growing tensions in the Middle East between Saudi Arabia and Iran, and the conflict between the West and Russia over Russian influence in the US elections and in Eastern Ukraine.

Admittedly, the Fed has already raised interest rates twice this year, and is likely to do so for a third time in mid-December. Our economists expect three further rate hikes next year. However, this does not necessarily preclude a rising gold price, as 2017 has shown. This is because other central banks apart from the Fed – such as the Bank of England and the Bank of Canada – have also increased interest rates in the meantime, which reduces the benefits of the rate hikes for the US dollar.

 Physical gold demand should generate somewhat more tailwind next year. It was fairly subdued in 2017. The World Gold Council (WGC) expects gold demand in India ultimately to reach a mere 650-750 tons after a strong first half of the year, putting it at a similarly low level as last year. Demand fell away when a goods and services tax was levied on gold purchases with effect from 1 July.

Gold ETFs On balance, ETF investors have hardly bought any gold at all since the end of September. By contrast, the world’s largest gold ETF – the SPDR Gold Trust that is listed in the US – recorded only minor net inflows. The numerous uncertainties and low real interest rates suggest that we will also see net inflows into gold ETFs in 2018. How pronounced these turn out to be will depend to a large extent on whether stock markets continue to fly high or whether they correct.

Numerous political uncertainty factors in Europe and the US, as well as a number of potential sources of geopolitical crisis, are likely to boost demand for gold additionally. Gold demand in Asia should have bottomed out and increase moderately in 2018. The gold price is likely to rise during the course of the year and to be trading at $1,350 per troy ounce by the end of 2018.

One risk factor for gold is the US tax reform. If this is fully implemented, the rally on the stock markets could continue, meaning that gold is in less demand accordingly.

So as we always say, gold is expected to have its share of highs and lows in 2018 and of the influencers discussed above, which happens first and how severely it happens will decide the fate of the yellow metal.