Risk appetite amid high uncertainty

As we look ahead, we expect that the interplay between market risk and economic growth will drive gold demand in 2020. In particular, we focus our attention to:

  • financial uncertainty and lower interest rates

  • weakening in global economic growth

  • gold price volatility.

In our new gold market outlook, we also explore the performance of gold implied by QaurumSM, our innovative valuation tool, across various hypothetical macroeconomic scenarios.

Gold shone in 2019

Gold had its best performance since 2010, rising by 18.4% in US dollar terms last year. It also outperformed major global bond and emerging market stock benchmarks in the same period (Chart 1). In addition, gold prices reached record highs in most major currencies except the US dollar and Swiss franc (see Table 2 in the Appendix). 

Gold prices rose most between early June and early September as uncertainty increased and interest rates fell. But investors’ appetite for gold was apparent throughout the year, as seen by strong flows into gold-backed ETFs, growing gold reserves from central banks, and an increase in COMEX net longs positioning.  


Gold Outlook Chart 1: Gold outperformed bonds and EM stocks

Chart 1: Gold outperformed bonds and EM stocks

Annual performance of major global assets *

Sources: Bloomberg, ICE Benchmark Administration, World Gold Council; Disclaimer

*As of 31 December 2019. Annual returns based on the LBMA Gold Price, Bloomberg Barclays US Treasury Index and Global Treasury Index ex US, ICE BAML US 3-month Tbill Index, Bloomberg Barclays US Corporate and High Yield Indices, MSCI EM Index, Bloomberg Commodity TR Index, MSCI EAFE Index, S&P 500 Indices, and Bloomberg Oil TR Index.


High risks and low rates on the horizon

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
  • 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 elevated
  • And while gold price volatility and expectations of weaker economic growth may result in softer consumer demand near term, structural economic reforms in India and China will support demand in the long term.

Read the full commentary, analysis, and see hypothetical forecasts for gold performance in 2020 as implied by Qaurum based on a range of maco-economic scenarios developed by Oxford Economics in our new outlook, or try Qaurum to customise your own scenarios.

Gold Outlook 2020 Focus: A supportive environment for gold investment

Gold has historically performed well in the 12 to 24 month period following policy shifts from tightening to “on-hold” or “easing” – the environment in which we currently find ourselves. And, historically, when real rates have been negative, gold’s average monthly returns have been twice as high as the long-term average (Table 1). Even slightly positive real interest rates may not push gold prices down. Effectively, our analysis shows that it has only been in periods with significantly higher real interest rates – an unlikely outcome given the current market conditions – that gold returns have been negative.

Gold Outlook Table 1: Gold performance nearly doubles in periods of negative interest rates

Gold performance in various real rate environments*

 Long term
Low (<0%)Moderate (0%-2.5%)High (>2.5%)
Monthly Return0.6%1.2%1.0%0.3%
Standard Error0.2%0.4%0.4%0.3%
Different from 0?YesYesYesNo

*Based on nominal gold returns between January 1971 and September 2019. Real rate regimes based on the 12-month constant maturity US T-bill minus the corresponding y-o-y CPI inflation. Difference from zero computed as a two-way T test at a 5% significance level.

Source: Bureau of Labour Statistics, Federal Reserve, ICE Benchmark Administration, World Gold Council

Qaurum: Your gateway to understanding gold’s performance

New on Goldhub for 2020 is Qaurum: a web-based quantitative tool that helps investors intuitively understand the drivers of gold performance. 

Qaurum allow investors to assess how gold may react across different economic environments in three easy steps:

  • Select a hypothetical macroeconomic scenario provided by Oxford Economics, a leader in global forecasting and quantitative analysis, or customise your own
  • Generate forecasts of gold demand and supply and view the impact of key macro drivers 
  • Calculate and visualise implied returns for gold

By using Qaurum, investors can calculate how various macroeconomic and geopolitical environments might impact the implied performance of gold over the next five years for as well as long-term 30-year returns.

Behind its user-friendly interface, Qaurum is powered by the Gold Valuation Framework (GVF). An academically validated methodology, GVF is based on the principle that the price of gold and its performance can be reliably explained by the interaction of demand and supply.

Register now to use our brand new tool.

Discover Qaurum


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