Despite bullish trends, Metal Focus report sees limited gold upsides

Trade tensions will hamper global growth and also weigh on emerging market currencies; with dollar's strength remaining a theme for much of 2019, gold's upsides will be capped, say the report

Metals Focus Director Nikos Kavalis said: “We expect US real GDP (gross domestic product) to slow in 2019 and 2020.” Among the factors supporting gold, Kavalis said, citing the Federal Reserve’s dovish stand, that policy rates were now expected to remain unchanged, as the overall global economic growth continued to face risks. The range, he said, was seen as $1,250 on the lower side and $1,400 on the higher. This meant the downside risk was 4 per cent, while the upside risk was 7-8 per cent.

On the level of price going ahead, the report projected that gold would trade in a relatively tight range around $1,300 in the next six months. “On the upside, we believe prices will probably be capped at last year’s peak of $1,365, while ventures to levels as low as $1,250 can also not be ruled out. A more meaningful rally is then forecast to take place later in the year when we see prices testing the $1,400 mark,” the report said.

During 2018, global central banks’ gold buying increased to 657 tonnes, which, according to the World Gold Council, was a 50-year high. Central banks diversified their reserves by adding more gold, as they saw risks to the global economy emerging. This year, their overall gold purchase will be higher than the past few years, but the momentum might not be as good as 2018. The agency said: “Net official sector {global central banks} purchases are likely to remain elevated at 600 tonnes this year (8.5 per cent lower than the previous year). Even as they do not match the 2018 level, a desire to diversify reserve portfolios will continue to justify higher allocations to gold, especially for countries that have a low share of bullion in their official reserves.”

On India’s gold demand outlook for the current year, the report said: “The outlook for Indian jewellery demand remains positive, given the government’s increased focus on lifting farm incomes, which will benefit both rural and urban purchases. In addition, the anticipated re-election of the (Narendra) Modi government might lead to the rupee’s strength, which would beneficially lower domestic gold prices (which is supportive for higher demand).”

On the flip side, the Metal Focus report said that “there is a looming threat of an El-Niño weather condition, which could impact farm output and, by extension, agricultural incomes. That said, we remain broadly optimistic and therefore forecast a 5 per cent rise in jewellery consumption in 2019, taking the total to a four-year high of 625 tonnes.”