Insights

The US Federal Reserve (Fed) announced an emergency 50bp rate cut yesterday, bringing the Fed funds rate down to a 1-1.25% range, in response to ongoing concerns about the potential impact of the coronavirus outbreak to the global economy. Treasury bond rates followed suit, with the 10-year note hovering 1% at the time of writing – an all-time historical low

The stock market embraced the weakest one-week performance since the financial crisis last week on the back of growing concerns of the continued spread of the coronavirus across the globe. Despite the risk off-moves, gold was lower by more than 3% last week, which is historically unusual during these types of movements. There are a few potential reasons for the weakness.

At the end of January, the new head of the European Central Bank (ECB), Christine Lagarde, announced the launch of a year-long strategic review of the bank’s monetary policy strategy. Stemming from this, there has been much discussion recently about the ECB’s existing “below but close to 2%” inflation target, and whether this needs to be made more specific, both in aim and measurement. 

“It just doesn’t get any bigger than this”. At least that is how President Trump is portraying the signing of the “Phase One” deal with China last week. But while talks between the two nations are undoubtedly positive for global trade, do they really make a substantive change in circumstances?

Gold stands apart from the broader commodities complex because of its unique market dynamics and performance drivers.

Gold rallied nearly 4% in December, mainly in the second half of the month, and recently moved to an intraday high of US$1,613/oz as the US-Iran confrontation unfolded. We believe there are a few likely reasons for the move...

As 2019 comes to an end and 2020 begins, we believe that:

• Financial and geopolitical uncertainty combined with low interest rates will likely continue supporting gold investment demand
• Net gold purchases by central banks will likely remain robust even if they are lower than the record highs seen in recent quarters
• Momentum and speculative positioning may keep gold price volatility high
• Gold price volatility and expectations of weaker economic growth may result in softer consumer demand near term
• But structural economic reforms in India and China will support demand in the long term.

Note: our comprehensive annual Outlook will be published by mid-January 2020.

The gold price has risen more than 15% this year against a backdrop of falling interest rates, economic uncertainty and geopolitical tensions. Dr Lu Zhengwei, Chief Economist of China Industrial Bank, Chief Economist of Huafu Securities and Vice Chairman of China Industrial Bank Research Limited, looks back in time to forecast the future for gold.

The UAE is an important jewellery market in the Middle East: its ten-year average jewellery demand in 2018 at 54.7t, only was second to Saudi Arabia. However, conditions in the UAE have been tough for gold in recent years.

Today we’ve published our Retail gold insights 2019 report, a thematic analysis of our new consumer research survey. With a base of 18,000 participants across India, China, Russia, Germany, the US and Canada, we believe it is the largest ever consumer survey on the global gold market.

It’s old news that the world economy is suffering. Ongoing trade tensions between the US China (and elsewhere too), the draining Brexit saga, as well as a myriad of other geopolitical uncertainties, have taken their toll. Global growth is slowing, and investors are downbeat on world economic prospects. Recession in many major economies is now a real possibility... As a result, central banks around the world have been busy cutting rates.

Yesterday, the International Monetary Fund released their updated World Economic Outlook. And, if investors were looking for any seeds of optimism, may I suggest reading The Art of Happiness by the Dalai Lama instead?

The US Federal Reserve has cut rates twice in recent months and the market expects more of the same, as economic conditions become increasingly uncertain in the US and across the globe. Gold has already benefited from the shift in sentiment and Harry Tchilinguirian, head of commodity research at BNP Paribas, believes it will continue to do so.

Gold rallied on Friday following the LBMA fix which left the fix price flat on the week and XAU higher (XAU +2%, LBMA -0.1%) as yields fell following the Fed rate cut which left the market thinking the ‘organic growth’ Powell discussed could represent future QE.