Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters.
Chennai: Financial uncertainty and lower interest rates coupled with weakening in global economic growth will drive gold demand in 2020, finds WGC. The macro economic factors will also see gold performing positively this year.
“We expect that many of the global dynamics seeded over the past few years will remain generally supportive for gold in 2020. In particular, we believe that financial and geopolitical uncertainty combined with low interest rates will likely bolster gold investment demand,” said World Gold Council in its outlook for 2020.
Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters. Looking ahead, WGC believes 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.
Historically, when real interest rates have been negative, gold’s average monthly returns have been twice as high as the long-term average. Even slightly positive real interest rates may not push gold prices down. In an environment where a quarter of developed market sovereign debt is trading with negative nominal rates and a whopping 90 per cent is trading with negative real rates, WGC believes the opportunity cost of gold almost goes away, even providing what can be seen as a positive “cost of carry” compared to bonds.
Further, market surveys indicate that majority of economists expect positive growth in 2020 for most countries.
WGC analysed the performance of gold as implied by four different hypothetical macro-economic scenarios provided by Oxford Economics, which included a global deceleration, US-led recession, a more pronounced slowdown in China and an economic improvement in emerging markets. The result of the analysis suggests that gold may see a positive performance in 2020.