In challenging or uncertain economic times, gold becomes a sought-after commodity. Its tangible value attracts investors from around the globe, offering unique hedging and speculative opportunities. Whether you’re interested in holding physical bullion or trading financial derivative products, the world’s gold markets provide opportunities to protect and grow wealth.
When crafting a gold price outlook for 2018, a case may be made from both the buy and sell sides. Regardless of whether a trader takes an intermediate-term bullish or bearish stance, three primary influences are currently driving values:
- Geopolitics
- Global production levels
- Central bank activity
Each of these factors will play a role in the value of gold on both the cash and futures markets throughout the remainder of 2018. In the event that one or more of them make headlines, look for enhanced volatility and pricing fluctuations to ripple through global bullion markets.
Geopolitical Uncertainty
The 2016 election of Donald Trump as U.S. president created a widespread feeling of angst in the capital markets. While participants were optimistic toward the prospects of a pro-business administration residing in the White House, few were sure just how rocky the road to prosperity was going to be. Thus far, investors who have taken a long position in U.S. stocks or futures index products have been pleasantly surprised.
A complete picture of how the “Trump factor” will impact 2018’s gold price outlook remains to be seen. Two hot-button issues are very likely to influence gold pricing throughout the rest of the calendar year:
- Tariffs and trade war fears: New tariffs and economic tensions between the U.S. and China, Canada, and European Union (EU) have bolstered concern over a forthcoming trade war. In the event that widespread currency devaluations become the order of the day, gold is positioned to benefit.
- U.S.-North Korea relations: The denuclearization of the Korean Peninsula has been a front-burner issue for the Trump administration. In the event that the tensions between the U.S. and North Korea escalate and relations break down, look for safe-havens such as bullion to post gains.
Gold values spiked by nearly 4% as word spread of a pending Trump victory on Election Night 2016. Since that time, values have ebbed and flowed around the $1300.00 per ounce level. Any major developments on the trade war or North Korean fronts are likely to send values north of this benchmark.
Global Production
In the marketplace of any commodity, production levels play an integral role in pricing. For gold, global mining and exploration are key determinants of value. 2017 was a good year for miners, with international production up 1% year-over-year. According to data from the U.S. Geological Survey, the gain is largely attributable to the performance of the world’s leading producers:
| Country | Metric Tons |
|---|---|
| China | 440 |
| Australia | 300 |
| Russia | 255 |
| United States | 245 |
| Canada | 180 |
| Peru | 155 |
| South Africa | 145 |
| Mexico | 110 |
| Uzbekistan | 100 |
| Indonesia | 80 |
One of the major questions facing any gold price outlook relates to production sustainability. China’s production is off 3% year-over-year for Q1 2018, an extension of the lagging output of 2017. However, Australia is projected to post a record year, and the U.S. is expected to hold steady at 2017’s levels.
When taken in the aggregate, global production is estimated to remain static or fall moderately. In the event that work stoppages or further output declines hamper leading producers, bullion markets may be in a position to rally as Q4 2018 draws to a close.
Central Banking Activity
On the flip side of supply is demand. One of the primary drivers of global gold demand are the activities of central banking authorities. In an effort to hedge against currency risk and preserve wealth, central banks periodically stockpile physical bullion. It’s a common practice, and one that is capable of influencing the gold markets dramatically.
Central banks, ETFs, and private holders can amass large bullion holdings. In terms of domestic gold reserves, below are the world’s richest nations:
| Country | Metric Tons |
|---|---|
| United States | 8000 |
| Germany | 3300 |
| Italy | 2400 |
| France | 2400 |
| China | 1800 |
| Russia | 1700 |
| Switzerland | 1000 |
For 2018, the lead story pertaining to central banking and gold reserves stems from China. As the fifth-largest holder of bullion worldwide, it’s being reported that the People’s Bank of China aims to purchase 400 metric tons on the open market throughout the calendar year. These purchases will be the first since 2016 and a likely catalyst for appreciating gold prices due to a spike in global demand.
Creating Your Own Gold Price Outlook
Similar to crude oil, gold is a complex commodity with many unique drivers of value. Crafting informed trading decisions can be a challenge. Evolving geopolitics, production, and reserve policies can dramatically influence pricing on both the futures and spot markets.
To help navigate the choppy waters of global gold, contact a market professional at Daniels Trading. Offering broker-assisted or self-directed options, Daniels Trading stands ready to provide the insight and guidance necessary to help you create a profitable gold price outlook.
