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Investor, central bank gold demand to remain strong in 2020 — World Gold Council

Kitco News

(Kitco News) - The gold market is ending 2019 on a strong note, trading at a two-month high above $1,500 an ounce, with strong investor demand said to continue supporting prices through 2020, according to the World Gold Council (WGC).

Too much uncertainty in too many sectors of the global economy will continue to support the gold market next year said Juan Carlos Artigas, director of investment research at the World Gold Council, in a recent interview with Kitco News.

Juan Carlos Artigas, director of investment research at the World Gold Council

Gold’s surging momentum into year-end shows that although risks have diminished in recent weeks, they have not completely disappeared. 

Artigas used the easing trade tensions between the U.S. and China as a prime example of the negative sentiment still hanging over financial markets. The U.S. and China are expected to sign a phase-one trade deal early in the new year, but Artigas noted that it is still not clear how the phase one agreement will impact the U.S. economy and if it can push economic growth higher.

Over in Europe, Artigas said that Britain and the European Union will continue to deal with Brexit in 2020, even if the U.K. Conservative party was able to secure a strong majority in Parliament after the Dec. 12 election.

“We don ’t know what the risks will look like but we know they are out there,” said Artigas. “We think all the ingredients are there for fundamental demand to support gold prices through 2020.”

Not only will investors have to deal with ongoing threats, but they will have to navigate a financial system that is seeing record high equity markets and extremely low interest rates.

“At best, central banks around the world will be on hold for 2020 and that is still a good environment for gold,” he said. “Because of low interest rates, 70% of sovereign debt is negative yielding and that is not going away any time soon.”

Not only are investors taking more risks with their investment capital to capture dwindling yields, but Artigas said that bond ’s don ’t provide the protection that they once did. Looking at the U.S., the real yield on 10-year bonds, which includes inflation, is ending the year at 50 basis points, down more than 50% since the start of the year.

“The risk profile for investors continues to change and the bottom line is that in 2020 investors are going to need a hedge and more and more of them are looking at gold as liquid alternative asset,” said Artigas.

Central banks will continue to be net buyers of gold in 2020

But it ’s not just investors that are looking for a hedge against uncertainty. Artigas said that the WGC expects that central banks will provide strong support for the gold market at that sector is expected to be a net buyer of gold for the eleventh consecutive year.

2019 was another big year for central bank gold demand as purchases hit their highest level in more than 50 years, surpassing the previous record set in 2018.

While it ’s difficult to predict how much gold central banks will buy, Artigas said that the important trend remains stable. He added that central banks are looking at gold as an important diversification tool during what can be an extremely volatile year.

He added that the precious metal is also an attractive alternative to the U.S. dollar as some central banks look to further de-dollarize their holdings.

“In 2020, gold will remain a relevant asset not just for retail and institutional investors but for central banks around the world,” said Artigas.

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