Thanks to spiked interest rates and tightening monetary policy initiatives by the US Federal Reserve, the gold rate will continue to push past new milestones. New prices will also increase the equity volatility next year, turning gold into an important portfolio diversifier, says an Australian bank ANZ.
The slow global economic growth is another factor that is putting pressure on gold to become next year’s preferable equity for a more diversified portfolio.
ANZ predicts gold prices to push up to $1,255 per 28 grams in the first quarter next year, jumping to $1,275 in the second quarter, $1,285 in the third quarter and peaking around to $1,300 in the fourth quarter. At this rate, the bank says that gold prices will push past the rate of $1,420 per 28 grams by the end of 2020.
While the Federal Reserve is continuing down its core plan of tightening monetary policies, it will increase rates by up to 2 times instead of the previously thought 3.
“Political considerations have no influence in our discussions or decisions about monetary policy,” said Fed chair Jerome Powell during Wednesday’s post decision press conference in a response to questions about President Donald’s recommendations against the rate hikes.
ANZ also added that the demand for the bullion is looking good due to increased inflows of ETF and the generally growing demand for gold. Under uncertain and unpredictable environment, the equity market might suffer, making it more likely for investors to turn to gold as they scramble to diversify their portfolios.
Yet early Thursday saw gold prices initially slumping before finally recovering and then rising to new highs. This is because many market analysts kept their hopes on the Federal Reserve’s decision to hold off on raising the interest rates.
The Bank of England didn’t make any changes to UK interest rates, perhaps to avoid uncertainty in a market that is rattled due to the Brexit issue.
Maxwell Gold, director of investment strategy at Aberdeen Standard Investment explains, “Gold benefits most from global systemic events as well as large equity market draw downs.”
Why Gold Was Declining to Begin With…
Gold was declining because of the dollar’s strength as well as the strong positioning of the US equity market. What supported the dollar was the ongoing dispute between US and China in their trade wars. This changed when the two countries made a truce for better economic stability, inadvertently weakening the position of the dollar.
Gold and dollar have always had an inverse relationship. A pricier dollar makes it less likely for investors to use other currencies and a strong stock market lures investors away from gold. Next year’s bullion industry will be impacted by the same factors that played a major part in its poor performance in 2018. It is unlikely that the dollar will have the same supports it had, making it difficult to retain its once stronger position.
An unstable financial market, rapid structural economic reforms and the Federal Reserve’s role will bolster gold’s prices, making it more attractive to investors looking for diversified portfolios.