Roundup: Rising gold expected to continue its upturn in 2018

BY  | FROM  | 2017-12-18 10:40

Despite U.S. interest rate hikes, global stock market rallies and Bitcoin mania, gold prices have climbed more than nine percent year-to-date.

A report recently released by the World Gold Council (WGC) maintains the precious metal has many reasons to stretch its gains into 2018.

Gold futures on the COMEX division of the New York Mercantile Exchange settled at 1257.50 dollars per ounce last Friday, recording 9.19 percent increase when compared to the end of 2016.

"The strong performance (of gold) is particularly noteworthy in a year when the U.S. has been hiking rates and equities have remained in favor", said John Reade, the WGC's chief market strategist.

The prices of gold, considered to be a safe haven for investors, have also been pushed up from time to time by geopolitical factors, ranging from tensions in the Korean Peninsula to Middle East jitters, from uncertainty of Brexit to terror attacks targeting big European cities.

As for the outlook of gold in 2018, Reade said that monetary policy will continue to be a significant driver of gold demand.

"With inflation still subdued around the world, we see monetary policy tightening as likely to be gentle, " he added.

The U.S. Federal Reserve this week just announced its third and final interest rate hike in 2017, and hinted at three, not four, rate hikes next year. The gradual approach was interpreted by market observers as "dovish" , and to some degree supported the gold prices.

The European Central Bank, the Bank of England and the Swiss National Bank have chosen not to follow their U.S. counterpart's move, leaving their key interest rates unchanged-- a signal to verify such a gentle tendency.

Away from monetary policy, analysts view two other factors as potentially important for gold.

First, the U.S. equities. A persistent bull market in U.S. equities, boosted by President Donald Trump's tax cut plan, has shown an upward trajectory. The Dow Jones Industrial Average has climbed more than 4800 points this year, setting new record one after another.

The sharp rise of U.S. equities has reduced gold's appeal in 2017 and an end to that trend could reignite demand for gold.

Second, the trajectory of the U.S. dollar. "If 2017 marks the end of a multi-year period of US dollar strength, gold could benefit from that tailwind, unlike the headwind that it has experienced since 2001." said Reade.

Physical market drivers cannot be ignored, as over the long run, income growth is the most important driver of gold demand.

"The outlook is encouraging," the World Gold Council believes, given the solid income growth in the world's largest gold markets including China.

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