Mubasher: Gold is expected to be more attractive as a hedge this year, on global financial market instability, the Federal Reserve’s possibly more neutral monetary policy and its impact on the dollar, the World Gold Council (WGC) said.
Appetite for the precious metal as a hedge would grow in the new year amid market uncertainty and the expansion of protectionist economic policies, the WGC, which traces global trends in gold wholesale prices, predicted.
While higher rates and the US dollar’s strength could weaken the gold’s performance, the impact of these factors would be limited as the Fed suggested a more neutral monetary stance.
Despite higher interest rates offer support to the US currency, this positive effect would fade, by the time the Fed monetary policy becomes neutral, due to the fact that the recent strength was driven partially by more accommodative monetary policy by other central banks.
The US administration also expressed frustration about the competitive disadvantage caused by stronger dollar.
Structural economic reforms in key markets would continue to boost demand for the yellow metal in jewellery, technology, and as means of savings.
Emerging markets account for 70% of consumer demand for gold, and are relevant to its long-term performance, the agency said.
Most specifically, India and China started to carry out economic changes necessary to support growth and secure their relevance in the global landscape.
For instance, India has been actively modernising its economy, lessening barriers to commerce and promoting financial compliance.
The Asian nation’s economy is expected to grow by 7.5% in 2018 and 2019, surpassing most of the world’s economies.
In the same vein, China’s Belt and Road initiative aims to promote regional economic development, buoy commodity markets, and upgrade infrastructure.
With its link to wealth and economic growth, gold is set to benefit from these reforms, the WGC noted.