LBMA: Gold To Inch Higher In 2019

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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!

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