Picture: ISTOCK
Picture: ISTOCK

A confluence of four key factors in the global market would underpin the gold price in 2018 after a 13.5% increase in the dollar price of the metal in 2017, the highest jump since 2010, according to the World Gold Council on Tuesday.

The factors picked out by the market development body, whose members are gold producers, include higher global economic growth, interest rate hikes and restructuring of the US balance sheet, overheated equity markets and increased access to gold through a variety of investment platforms.

Sharps Pixley CEO Ross Norman said that although the forecast for gold prices during 2018 was only "modestly" higher, "gold has rarely been more important to own".

"Gold has become price elastic, just as it was in the 1990s. And then there was 2000 … the best is yet to come, but not just yet. Patience," Norman said, forecasting gold would trade in a range of $1,260/oz to $1,400/oz and average $1,358/oz.

The council, which states its purpose as being a global authority on the gold market and stimulating demand for the metal, said exchange-traded funds backed by gold attracted $8.2bn in fresh investment during 2017. There are 71.5-million ounces of gold in these investment products globally.

The 13.5% increase in the dollar price of gold during 2017, which the council said outperformed "all major asset classes other than stocks", was driven by a belief the gold price trajectory was sustainable as well as by geopolitical concerns, expensive stock valuations and a weaker dollar. The dollar is hovering at three-year lows, while the euro is at three-year highs.

"The dollar looks set to continue to stumble as markets grow increasingly confident that global recovery will outpace US growth, which is expected to prompt other major central banks to hastily unwind their easy money strategy," said financial consulting service company SP Angel.

Other factors that would steer the gold price and affect the global financial markets included the normalising of global economic growth, with expanding US and EU economies; and the switching of the Chinese economy from investment-driven growth to consumption-led growth.

"Our research shows that continued economic growth underpins gold demand. As incomes rise, demand for gold jewellery and gold-containing technology such as smart phones and tablets rises," the council said.

With improved economies, many major central banks would tighten monetary policies, raising interest rates, and stop pouring billions of dollars into their economies through quantitative easing. While higher interest rates are generally negative for gold, the council said market volatility could increase, which would send investors into gold as a safe-haven asset.

Amid concerns that markets were becoming overheated and that they could correct, "investors could benefit from having an exposure to gold as it has historically reduced losses during periods of financial distress", the council said.

seccombea@bdfm.co.za 

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