Key Trends That Will Affect The Gold Market In 2018
The World Gold Council started the year off by releasing a report that looked at the four main drivers that will have an impact on the gold market in 2018. The Council has always taken a mainstream view when it comes to the world economy and gold, but there seems to be a fresh perspective that has informed this report.
The first thing that the council report notes is the good performance of gold in 2017. It highlights the $8.2 billion worth of gold backed exchange-traded funds as an indicator of a strong demand for gold in the market. Despite rising stock markets and interest rates, gold outperformed a lot of other asset classes. Gold has always provided competitive returns. Since 1971, just after the end of the Gold Standard, gold has provided an average return on 10%. It has also outperformed major stocks in the last two decades.
According to the World Gold Council analysts, thee are four key major drivers that will influence the price of gold in 2018.
1. Synchronized global economic growth
The global economy is expected to grow in 2018. This is particularly important in those countries that consume gold the most like China and India. It is a well known fact that economic growth affects the demand for gold. This is because income increases and more people can accord to buy gold. Economic growth also affects the rate of technology advancement and the demand for gold-containing technology like smartphone. People have money to invest either in gold bars or coins.
2. Rising interest rates
In an effort to shrink debt and normalise balance sheets, the world’s Central banks usually raise their interest rates. The World Gold Council, however expects most central banks to keep their interest rate low. The conventional reasoning is that high interest rates should put pressure on gold, but the WGC does not think they will have that much of an impact even if they should surge to some unexpected level.
Over the past decade, central banks dumped trillions of dollars into the economy, slashing interest, pushing asset values to record high. These expansionary policies by Central Banks created a very volatile market. Central Banks have to reign things in and when they do, the main beneficiaries of this decade-long quantitative easing will come under extreme pressure. Government bonds may lose their value, but gold should hold out.
3. The end of the stock market bubble
Economists have long held the belief that we are caught in a large stock market bubble. This means there is a lot of systemic risk. The global financial markets have to correct themselves. Gold has always been a safe asset to hedge wealth in times of financial distress.
4. Access to a transparent, efficient market
According to the report, the gold market has become more transparent and easier to get into. There might be some regulatory challenges, but some countries are working towards making regulations a little easier to allow more investments.
Overall, things look quite optimistic for the gold market in 2018. The World Gold Council has done a great job of mapping out the exact things that will have an effect on how gold does.