The Fed’s intention to ease back on the pace of its policy tightening for the year in response to the macro data and financial market signals has also raised gold’s appeal.
The IMF’s lowering of its global growth outlook for 2019 for the second time in three months reflects the slowdown that is starting to take hold across the world. The new forecast is 3.5%, down from the previous estimate of 3.7%, due in large part to slow growth in the eurozone and emerging markets, in particular China, where GDP growth recently came in at its lowest since the great financial crisis of 2009.
Even though the recently firmer equity markets have put a lid on gold prices, we believe gold will continue to go up, at least until the trade dispute between the US and China is settled. We believe that ongoing political and economic pressures will prompt the two sides at least to sow the seeds of an agreement. This would help the Chinese economy, but also Donald Trump, who will soon begin campaigning for re-election and is running out of levers to strengthen the economy (more tax cuts are unlikely). Even though China has agreed to ramp up its imports from the US, the intellectual property and technology transfer questions remains unsettled for the time being.
Even if an agreement is reached in the trade dispute, the US debt ceiling debate will reignite soon in the US as the current debt limit will be reached by 1 March. That debate promises to be as heated as the wrangling over the government shutdown, and a solution will be difficult to reach. In this context, gold prices could well remain positive for the months to come, holding up around the USD 1,300 mark.
As for other PGMs, palladium was by far the strongest commodity in 2018. It was supported by higher demand from China where vehicle emission standards are stricter. Another factor was the fear that US sanctions on Russia would weigh on exports as Russia remains the world’s main producer and exporter of palladium. The metal remains our favourite PGM for 2019, even though we acknowledge the possibility of some price stabilisation (back towards the USD 1,000 level). Platinum prices, on the other hand, were hurt but the shrinking market share of diesel cars. Silver was the worst-performing precious metal in 2018, its price particularly affected by the weaker Chinese yuan and Indian rupee, and we doubt that the trend has bottomed out.
Névine Pollini
Equity Analyst Advisory Services