LBMA: Gold To Inch Higher In 2019
The LBMA initiates a precious metals price forecast by involving precious metals analysts from around the globe. It generally conducts the exercise at the end of January every year. This year’s price forecast threw up some interesting facts (see chart alongside). What it showed was that analysts around the world were not very sure about the price trend for gold during 2019. The average gold price predicted for 2019 was $1,311.71 per ounce, just 1.78% higher than the actual average price in the first half of January 2019. While the high for the year was predicted at $1,475 per ounce, the low was $1,150 per ounce. The range was $325. One could have safely inferred that it would be a quiet year for gold.
However, gold was pretty active in the first half of the year and on July 19th 2019 it scaled a six-year high of around $1,450 per ounce (intra-day). So, why is gold on a roll? Is it a flash in the pan, or is gold now in a bull run? For, in recent months, the gold price has progressively increased after every decline. Moreover, every lower price is higher than the previous low. Most experts now expect gold to touch $1,500 per ounce before the year end. There are a few now who see $1,600 or even $1,700 per ounce in the last quarter! What is behind this gold rally? Is it here to stay?
Several factors contributed towards the recent surge in the gold price:
(a) Central banks across the world, including the RBI, purchased 651 tonnes of gold in 2018, the highest in decades. The same trend continues in 2019. (b) The US Fed has been dovish in its outlook and
that is what propelled gold forward during the recent gold rally. The markets expected a 0.25% to 0.50% rate cut in the July 30th-31st meeting. (c) Likewise, the European Central Bank (ECB) was expected to announce rate cuts and stimulus to boost the markets. The fact that the ECB just announced the intention to restart the stimulus process from September caused gold to scale down from around $1,429 per ounce to around $1,414 per ounce.
(d) Positive US economic data often pulls down the gold price. But, any data below expectations acts as a boost to the gold price.
(e) The over-valued US dollar and the weak GDP in
the US at around 1.6-1.7% aid the gold price.
(f) The fact that the US is in a trade war with China and engaged in tariff disputes and sanctions against many more countries adds to the imbalances in the system and propels the gold price forward.
(g) Geopolitical tensions in various regions of the world, particularly around Iran, acts as instantaneous fuel to higher gold prices. Any news about confrontation in the Strait of Hormuz adds to the tensions and one can see the gold price zoom forward.
Technical chartists also project the gold price to move higher, with more chances of an upside, with strong support levels near $1,400 per ounce. So, will gold price zoom ahead or retrace its step? The situation is very fluid and much depends on how the US markets behave. Too many of the factors mentioned above are under the influence of one man. And that is the crux of the matter!