World Gold Council: Uncertainty combined with low interest rates will likely bolster gold investment demand
Liam Sheasby, News Editor
20 Jan 2020, 5:42 p.m.
The World Gold Council (WGC) published its 2020 forecast on Wednesday, with few surprises in their predictions for gold’s movement this year.
The Gold Outlook detailed how the WGC expects a continuation of the ongoing global economic slowdown, which in turn will maintain demand for investment gold.
“We believe investors – including central banks – will face an increasing set of geopolitical concerns, while many pre-existing ones will likely be pushed back rather than being resolved. In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels”.
The report stresses that uncertainty, low interest rates, central bank purchases, and volatility will be the driving factors behind the gold price rising in 2020, though it warns of a short-term consumer demand loss due to economic reforms in the two largest gold buying nations – India and China. The WGC does expect this to lead to an increase in long-term demand beyond that lost this year, however.
Gold was one of the standout performing assets in 2019, as demonstrated by the World Gold Council's charts below:
The complexity of the Middle East when considering the likes of Saudi Arabia, Iran and Syria has kept oil at the top of the table, and the bumper run for US stocks has kept the S&P 500 in second place, but gold matching all other global stocks outside of America is a significant achievement and shows how important gold is considered at present - especially as a physical asset and a safe haven for hedging investments.
With the International Monetary Fund issuing their latest World Economic Outlook, the expectation is for 3.3% global GDP growth in 2020 rather than the previously predicted 3.4%. Growth in 2021 has also been revised, now down from 3.6% to 3.4%. These percentage points might initially appear small, but applied to the world economy they equate to billions or more in reduced GDP.
Chart 3, again taken from the WGC's report, shows another major driving factor behind safe haven demand - debt. Global debt is rising, and there are many who are concerned that too much debt will lead to defaulting, which will trigger a collapse of one or more fiat currencies.
Despite this upwards trend for gold, one news story that might hinder this year’s gold price is a story published by Bloomberg that Russia’s central bank is seemingly slowing down its gold purchasing in 2020 after two decades of consistent buying as a diversification in national reserves away from the US Dollar and a currency that President Putin has slammed for being used by the US government to bully other nations. Russia acquired 149 tonnes of gold in 2019 – 44% less gold than in 2018. Despite this, purchases were still higher than at any point between 2010 and 2013, which could suggest that 2020’s potential slowdown is more of the same as last year and a return to the previous purchasing levels.
Our own 2020 Gold Forecast focused on the same factors as the WGC for continued strong gold demand this year, with estimates of $2,000 to $3,000 per ounce for gold this year based on the prospects of conflict between the US and either Iran, North Korea, or both, as well as continued slow progress on the US/China trade deal, issues surrounding President Trump’s impeachment and the upcoming US Presidential Election, and central bank buying.