Four factors to underpin gold demand growth in 2018
Baku, Azerbaijan, Jan.16
By Leman Zeynalova – Trend:
Four main trends in 2018 will support demand and maintain gold’s relevance as a strategic asset, according to the report released by the World Gold Council.
One of those trends is the synchronized global economic growth, said the report.
“Ten years after the financial crisis, the world is returning to economic normality. Global growth increased in 2017 and the market expects the trend to continue in 2018,” World Gold Council analysts believe.
It is expected that China’s economy – home to the world’s largest gold market – will continue to grow, but the nature of growth is changing: its long-awaited transition from investment-driven growth to a consumption-led model is underway.
“This could affect the economic growth rate, but even if the Chinese economy grows at a slower rate than in the past, we see a more balanced model – aided by further global integration through its One Belt One Road initiative – as supporting a sustainable growth trajectory,” said the report.
Continued economic growth underpins gold demand, according to the World Gold Council.
“As incomes rise, demand for gold jewelry and gold-containing technology, such as smartphones and tablets, rises. Income growth also spurs savings, helping increase demand for gold bars and coins. Investors often focus on gold’s effectiveness as a hedge against financial shocks. But rising wealth underpins gold consumer demand, which, in turn, supports gold prices over the long run,” said the report.
World Gold Council analysts believe that the second factor supporting the gold demand growth is the shrinking balance sheets and rising rates.
“The Fed (US Federal Reserve Board of Governors) will take the lead as it seeks to shrink its balance sheet and it is anticipated that by 2020 its balance sheet will decrease to around $2.5 trillion, having been at $4.5 trillion since 2014. The Fed is also expected to raise rates further. But while higher rates increase the opportunity cost of investing in gold, we believe the implications for gold are more nuanced,” said the report.
Analysts believe that the potential headwinds to gold may not be as strong as some think.
“Gold can help investors manage financial market risks. Our analysis of gold’s performance reveals that when real rates are between 0 percent and 4 percent, gold’s returns are positive,” said the report.
The other two factors, which according to the World Gold Council will positively affect the gold demand growth are frothy asset prices, as well as market transparency, efficiency, and access.
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