Gold's Safe-Haven Status To Shine As Global Economy Slows In 2019 - Capital Economics
(Kitco News) - This will be the year of asset reallocation that benefits the precious metals, with traders opting for safer investments such as gold and silver amid a global economic slowdown, according to Capital Economics.
Slower global economic growth is Capital Economics’ major theme for the next two years.
“At the global level, we forecast GDP growth to slow from 3.6% to 3.0% this year and to a decade low of 2.8% in 2020,” the consultancy’s economists wrote in their Q1 Commodities Outlook. “We remain bullish on the prospects for gold and silver prices and have revised up our end-2019 forecasts to $1,350 per ounce and $17.50 respectively, as we expect both metals to attract investors seeking safe havens.”
On top of slower growth, global equities are also projected to fall this year, which will limit investors’ appetite for risky assets, the report highlighted, noting that the S&P 500 is projected to fall to 2,300 by the end of 2019.
This development will work in favor of gold, which is coveted for its safe-haven properties: “Investor inflows look set to continue given our expectation of further falls in global equity markets and slower economic growth,” the economists wrote.
Other elements set to drive gold demand this year are weaker bond yields and increased buying from central banks around the world.
“Bond yields will fall and that this will encourage more investor buying of gold as the opportunity cost of investing in other low risk investments drops,” the report stated. “We have pencilled in gold purchases of at least 500 tonnes by central banks in 2019 up from 373 tonnes in 2017.”
Even though Capital Economics sees 2019 as a very prosperous year for gold, prices are unlikely to make any additional gains in 2020, remaining around the $1,350 for most of next year.
The main headwinds for gold in 2020 include a rebound in global equities and a cooling in safe-haven demand, the report pointed out.
In terms of global monetary policy, Capital Economics is quite dovish, expecting the Fed to raise rates only once in 2019 before going back to cutting in 2020. In the meantime, the firm sees the European Central Bank (ECB) and Bank of Japan (BoJ) completely missing out on the tightening cycle this and next year.