Gold Monthly Forecast – January 2019

Geo-political issues are expected to keep safe haven asset in demand while subdued USD owing to political issues will help boosting performance of gold bulls significantly.
Colin First
Gold Bars and Dollar
Gold Bars and Dollar

Gold traded highly bearish during 2018, however when looking from perspective of financial year gold is currently in neutral state. Despite a year filled with high impact news driven trading activity much of which was owing to major geo-political and economical issues, gold failed to see any bullish price action as the yellow metal lost its status as preferred safe haven asset among investors to US Greenback. US Greenback was highly bearish for first three quarters supported by multiple rate hikes from US Federal Reserve which greatly boosted its value in broad market and painted a positive long term outlook scenario which combined with US Treasury Yield spiking to multi year high’s caused investors to view USD as a safe haven asset greatly changing the fund flow in market on unprecedented scale.

US Political & Economic Woes Hurt Dollar Boosting Demand For Yellow Metal

Despite majority of geo-political and economical issues being initiated by USA, the US dollar basked in all its glory as a safe haven asset backed by strong fundamentals in form of positive US macro data, multiple fed rate hikes and positive price action in US bond market. The major issues which created high demand for safe haven assets during first three quarters are listed below:

  • Brexit
  • Italian Budget Crisis
  • German Political Proceedings Which Saw Chancellor Merkel lose Influence
  • French Yellow Vest Protests
  • Death of Saudi Journalist & Resulting Tensions Between USA-Saudi
  • Sino-U.S. Trade War
  • US Tariff on European Markets With Main Focus on Automotive Products
  • Crude Oil Price Decline Following US Tariff on Iranian Crude

While few other issues that inspired safe haven demand are not mentioned in the list, above mentioned events had greater long term impact on price action of yellow metal. Since Yellow metal traded in international market and US markets are denominated in US dollar, investing in bullion was deemed as a costly act with no possible profit owing to gold being non-interest yielding asset. Price action surrounding gold was further hampered as broad based firm dollar which continued to grow made it costly investment owing to higher exchange rate leading to lesser participating from China, India and other  emerging markets which was were majority of action surrounding yellow metal came from owing to said markets viewing gold as a back up against inflation.

At close of third quarter of FY 2018-19 gold is viewed to be in neutral level as political and economic issues in US market greatly affected greenback’s value in broad market. This combined with unfavorable proceedings in geo-political issues and concerns of slowdown in global economy helped Yellow metal reclaim losses from first two quarters ending December 2018 on neutral levels.  Gold started regaining upper hand when US mid term elections saw Democrats take control of the house. Divided results in election weakened outlook of greenback as President Trump was expected to face difficulties moving ahead with his plans on divided congress. Following this first week of December saw gold move range bound owing to positive headlines from G-20 Summit which saw US President Trump & Chinese Premier Xi Jing Ping agree to delay tariff’s by 90 days greatly boosting risk appetite.

However gold retained gains from previous month on investors worries over economic slowdown in global markets and US Treasury Yield curve inversion. The remaining three week’s of December saw gold price climb steadily. Second week saw gold price climb on increased safe haven demand owing to French yellow vest protest causing damage worth hundreds of millions of dollars and Brexit deal being pulled out of parliamentary approval which resulted in EU initiating no-deal scenario proceedings across major markets. This was further supported by concerns of global economic slowdown which caused bearish rout in equity market. The third week saw Gold gain further on back of subdued USD over weak US macro data and Fed Forward Guidance which was highly in contrast to investors expectations with Fed signalling two rate hikes in 2019 despite signs of slowdown in US economy while analysts and traders believed Fed would put a pause to rate hike.

Gold To Remain Fundamentally Supported Across January

This move caused greenback to fall so hard resulting in exchange rate falling significantly in emerging markets bringing in flood of cash flow from China, India & other emerging markets. The gains made were further supported by spike in demand for bullion on last week of December amid increased uncertainties and volatility in holiday season which combined with falling demand for greenback owing to partial shutdown of US government on Trump tantrums over finance for border wall and investors seeking protection of safe haven asset amid thin trading volumes helped gold gain significantly with proper fundamental support. Moving forward, market is set to resume normal trading activity post holiday season and gold is expected to remain supported across the month. Much of issues mentioned above remain unresolved and this is expected to keep safe haven assets in significant demand across January. US Greenback is expected to continue trading bearish owing to ongoing political crisis in USA which will help boost participation from emerging markets. Gold will also see increased demand owing to Brexit proceedings which suggests yellow metal has bullish short term outlook and will trade positive across January 2019.

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