In a recent piece titled What to expect for gold in 2018, John Reade, Chief Market Strategist for the World Gold Council, analyses market drivers for gold in the coming year.
Financial Market Drivers in 2018
According to Reade, “monetary policy – and policymakers – will continue to be significant drivers of gold demand”. He explains that the US Federal Reserve (the Fed) is expected to “hike rates further next year and start to allow its balance sheet to contract”.
Over the next 12 months, Reade predicts a possible slowdown in the European Central Bank’s (ECB) monetary policy action. Additionally, the Bank of Japan may dial back its quantitative easing, and China could continue its efforts to rebalance economic growth and possibly de-leverage some sectors of the economy.
There are two other factors as potentially important for gold: first, the ongoing strength – or otherwise – of already expensive US equities. Second, the trajectory of the US dollar.
Physical Market Drivers in 2018
Reade explains that income growth is probably the most significant market driver for gold. This rests on the fact that, over the long run, it has been the most important driver of gold demand. Reade says that the WGC is optimistic for its outlook. Additionally, “China, the world’s largest gold market, has avoided the hard landing that many were predicting 18 months ago and is expected to grow at a fair clip in 2018, with the consensus forecast at around 6.4%”.
India is expected to be one of the fastest-growing countries in the world in 2018, expanding at an even faster rate than it did between 2012-2014.
Germany’s economy is expected to maintain its momentum and unemployment is anticipated to continue falling. Finally, the US jewelry market, the third-largest in the world, could benefit from continuing economic growth and high consumer confidence.
