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Gold Is An Attractive Diversifier For Investors and Central Banks In 2019 - WGC

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(Kitco News) - Geopolitical uncertainty won’t do much for gold prices heading into 2019; however, pare that with growing economic weakness and precious metal stands out as a clear safe-haven asset, according to the World Gold Council.

In an interview with Kitco News, John Reade, chief market strategist at the WGC said that he sees a potential for the gold market as investors will have fewer defensive assets to choose from in 2019 when economic and geopolitical uncertainty are expected to create financial market volatility. He explained that through most of 2018 investors found safety in the U.S. dollar and equity markets; however, financial market conditions are starting to look a lot different heading into 2019, he said.

John Reade, chief market strategist at the World Gold Council

“What initially looked like a short-term correction, equities now look to be entrenched in a downtrend,” he said. “When you look at the growing economic risks out there, gold starts to look pretty exciting.

“As a high quality, liquid asset, with the potential to deliver strong returns, and as an effective diversifier that works particularly well when other assets fall sharply, gold has historically proven to enhance the long-term performance of investment portfolios,” Reade said in a 2019 outlook report.

Equity markets are flirting bear market conditions and investors have fewer safe-haven options, ahead of the new year. Despite Wednesday’s record move, where the Dow Jones Industrial Average rallied more than 1,000 points during the session, equities are still significantly down since seeing recording highs just a few months ago. The Dow Jones is down nearly 17% since its October record highs. Meanwhile, the S&P 500 is down almost 18% from its highs from September.

“In 2018, you could hold your nose and buy U.S. equity markets because they were performing very well. That worked well for many investors until October, but the environment has changed and now gold looks a lot more attractive,” he said. “If the economic slowdown is rapid or if risk assets fall sharply, investment flows into gold could match those seen during the 2008-2009 financial crisis.”

However, it’s not just retail investor diversification that will drive gold prices next year. Reade said that outside of investors demand, the most significant factor to drive gold in 2019 will be continued central bank buying.

This past year central banks bought gold at the fastest pace in nearly three years. According to stats compiled by the WGC, global central banks bought a total of 341.3 metric tonnes of gold last year. While countries like Russia, Turkey and Kazakhstan continued to build their gold reserves through 2018, they were accompanied by the National Bank of Poland, which boosted its reserves to 116.7 tonnes, up from 13.7 tonnes. Hungary’s central bank increased its gold reserves 10-fold to 31.5 tonnes. Mongolia’s central bank bought 12.2 tonnes of gold in the first eight months of the year.

“Reserve asset managers at central banks recognize that they have a very high proportion of their foreign reserves is held in U.S. dollars,” he said. “If you are looking for an alternative to the U.S. dollar then I think gold looks more attractive than it did 10 or 15 years ago. If you look at alternative reserve currencies, there are issues with all of them.”
Reade said that the conversations the WGC has had with global central banks, he expects to see gold reserve continue to grow through 2019.

“We constantly talk to central banks about gold and we have gotten a much better reception this past year than we have in the last two or three years,” he said.

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