After staying range-bound, gold likely to trade with an upward bias in 2019

After staying range-bound for several years, gold is expected to trade with an upward bias in 2019. 

A decade-long bull run in gold from 2001 to 2011 when it gained over six times, was followed by a 40 per cent decline by 2015. Since then it has traded in a range between $1,150 and $1,350 per ounce in international markets. In 2018, prices are still lower by 1.9 per cent in dollar terms but in India gold went up 7.9 per cent from Rs 29,240 to Rs 31,550 per 10 gm, due to rupee depreciation. 

Institutional investors globally, who were putting money on high yielding assets other than gold, are expected to return to gold in the coming years. 

Chirag Sheth, senior research consultant - South Asia at Metal Focus, a London-based metals and precious metals research firm says, “We expect professional investors to gradually change their positions, especially during the latter part of 2019.” This is due to a slowdown in the US, and the Fed adopting a dovish stance on interest rates. “This in turn should result in the US dollar declining, while weaker economic growth will feed through into poorly performing equities. As a result, from late 2019 onwards, we expect a bull market in gold to emerge, which in our view will remain in place for the next two to three years,” he forecasts. 

Metal Focus’ base case scenario price (annual average) forecasts for 2019 is $1,305 per ounce which is 3 per cent higher than the 2018 average price and $1,429 per ounce in 2020. It says the second half of next year will be decisive. 

While there is general consensus about gold prices rising next year, the rise in initial quarters may see bumps. Nigam Arora, a US-based financial market expert and author of the Arora Report feels the ups and downs in stock markets will have a bearing on gold. He says, “Right now money is flowing into the safety of gold and out of stocks. When stocks recover, money should flow out of gold causing weakness. Any move below $1,200 an ounce will likely be a buying opportunity. If the dollar weakens and stocks tank again after a recovery, gold has a shot to go over $1,370.” 

However, on average price basis, returns don’t look that decent in 2019. Natixis senior analyst Bernard Dahdah says, “We are bullish on gold prices for 2019, with prices averaging $1,275 an ounce and then rising to an average of $1,300 an ounce in 2020.” In 2018 gold price averaged $1268. 

Metal Focus expects jewellry demand for gold to continue in India for the next few years, while investment demand as a hedge against currency weakness too to be there going ahead.

Without mentioning Indian price levels for 2019, Sheth says, “We forecast a temporary drop in demand in 2019 due to elections and higher local gold prices. Over the long-term, physical investment is expected to expand as strong growth and lower domestic gold prices due to rupee appreciation will help demand.” 

This indicates that in rupee terms gold may see some appreciation which will make it look cheaper but overall price is projected higher on average and during the year prices are likely to be above current levels, which Arora too does not disagree with.