What analysts expect for 2019
Uncertainty in any form benefits gold in its role as a hedging instrument and safe haven. In predicting the future price of gold, analysts are, as usual, a divided lot. Some of the prominent forecasts for 2019 made towards end of 2018 or the beginning of 2019 are given below:
- Goldman Sachs: If U.S. growth slows down next year, as expected, gold would benefit from higher demand for defensive assets. Goldman Sachs predicts gold price for 2019 targeted at around USD $1,325/oz.
- JPMorgan Chase: “We see gold likely repricing lower through the middle of next year, at which point the Fed’s policy will move into restrictive territory. The curve will invert, the expansion will slow and expectations of Fed easing will build. At this juncture, we would expect real rates to move lower and gold’s fortunes to reverse, as gold tends to benefit from consistent drop in real yields during the lead up to recessions and thereafter.” 2019 gold price forecast: $1,294/oz.
- Credit Suisse: “The USD has on average depreciated in the latter third of past expansions but there is a lot of variation across cycles, so this is far from certain. In contrast, commodities and especially gold have tended to appreciate consistently.” 2019 gold price forecast: $1,250
- BOFA Merrill Lynch: Gold is set to surge over the next year as concerns deepen about the widening U.S. budget deficit and a tariff-driven trade war starts to damage the country’s economy. Bullion could average $1,350 an ounce in 2019 as corporate tax reforms worsen the U.S. fiscal balance.
- ABN AMRO: “We think the risk reward for entering precious metals positions is quite attractive. If our base scenario plays out, it is likely that precious metal prices will rise this year and next on the back of a cut back in speculative short positions. 2019 price target: $1,400.”
- HSBC: “HSBC expects gold to average USD $1,292/oz in 2019. With this aging equities rally globally, if we do get some financial market uncertainty, gold’s likely avenue for a rally will be through a rise in volatility.”
Our view – Continue to be positive on gold
The year 2018 was very volatile for gold which initially benefited from fall in US dollar and rising geo-political risks. However, with positive US economic growth prospects amid record low unemployment rate and strong growth numbers, and with inflation within the targeted levels, the process of normalisation of interest rates seemed easier. This strengthened the US dollar vis-a-viz other major currencies thereby pushing gold lower. Thereafter, gold recovered at the end of the calendar year but not enough to prevent it from registering a fall of 0.93 percent over 2018.
However, gold had started gaining strength towards the end of the last quarter (5 percent gain in the month of December 2018), as most emerging market currencies stabilised and the US dollar weakened amid concerns over slowing economic growth and volatility in global equity market. Besides, the Fed Chairman Jerome Powell hinted at an easing in the pace of future rate hikes amid slowing US economic growth. While in December he had indicated the likelihood of two more rate hikes in 2019, most recently, i.e. on January 30, Powell came out with his strongest statement to date that the central bank is changing its tune on interest rate hikes. He stated plainly that “the case for raising rates has weakened somewhat.”
Accordingly, we expect the year 2019 to be positive for gold as further dollar appreciation is less likely with slowdown in the US economy and expected pause in interest rate hikes by the US Fed. To put a number to our expectations, we would expect gold price in 2019 to stay within a price band of US $1,210 to US $1350 per ounce with an average price of around US $1,280.
(V.P. Nandakumar is MD & CEO of Manappuram Finance Ltd. Views are personal)
