The World Gold Council (WGC) recently agreed that global investors will "continue to favor gold as an effective diversifier and hedge against systemic risk." The rise in protectionist policies around the world is chief among the risks since they tend to lead to higher inflation and slower economic growth over the long term.
I agree and believe that gold will put in higher lows this year that provide a much more stable trading environment.
Before we look ahead let's take a look at commodity returns for the past 10 years, courtesy of Bloomberg and U.S. Global Research.
Gold was relatively flat last year, down 1.58%. Copper was down over 17%. Silver was down nearly 9%. Zinc was down 25%.
Palladium, wheat, and corn were the lone winners (the chart didn't include uranium), up 18.5%, 17.8%, and 6.9%, respectively.
So, what to expect in 2019?
The commodity giant in the room - China - is now experiencing growing pains that will require compromises in the current trade spat with the U.S.
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Copper has pulled back due to the trade tensions with China but those trade tensions are not sustainable and a resolution of the recent tensions will provide a snapback in copper prices that I suspect will catch the market off guard.
GDP growth in China is expected to slow to sub-6% in the first half and for the full year to come in around 6%, down from 6.6% in 2018, as reported recently.
Numbers reported by China are always met with skepticism. One indicator I like to look at is energy consumption, which is trending just under 2%, according to a recent Forbes article.
Gold has also once again captured the attention of the mainstream, which leads me to believe we will indeed have a better gold market, but I expect that to happen in the second half of this year.
Fitch Solutions commodities analyst Sabrin Chowdhury recently noted that "the expected rebound in gold was already playing out and that the price should reach 2013 highs, averaging around $1,300/oz this year, with investment flows into safe haven assets increasing as dollar strength, market volatility and the trend toward protectionism continues."
Citi sees gold prices pushing to a high of $1,300 an ounce this year with prices averaging the year at $1,265 an ounce. The bank also sees a 30% chance that gold prices push to $1,400 an ounce by the third quarter of this year and average the year at $1,365 an ounce.
I even find myself in agreement with Goldman Sachs, which raised its gold forecasts to $1,325, $1,375, and $1,425 per troy ounce over the next three, six, and 12 months respectively.
I don't believe in peak gold and I don't put much faith in gold/silver ratios or any of the other esoteric metrics that people only seem to refer to when they're right, because this time is different.
It's why everyone is counting on a weaker dollar to be the fuel that sends commodities and, specifically gold, higher.
It may play out that way but I don't see that being the case. I see an environment where gold and the dollar take off together - initially - while contagion overseas sends capital home here to the U.S.
Doesn't mean it'll be that way forever. The dollar will do what all currencies do but not before one last ride higher that causes a storm and provides the energy we need for gold to get on a bull run for the books.
To your wealth,
Gerardo Del RealEditor, Junior Mining Monthly and Junior Mining Trader.
For the past decade, Gerardo Del Real has worked behind-the-scenes providing research, due diligence and advice to large institutional players, fund managers, newsletter writers and some of the most active high net worth investors in the resource space. Now, he is bringing his extensive experience to the public through Outsider Club, Junior Mining Monthly, and Junior Mining Trader. For more about Gerardo, check out his editor page.