Gold investors saw their fortunes change during the second quarter after benefiting from gold’s strong performance in the first quarter, says the World Gold Council (WGC) in its mid-year outlook.
The study considers the impact of global economic trends on gold’s performance.
“The first half of 2018 proved quite eventful for financial markets. Stocks experienced a few pullbacks during the first quarter as geopolitical tensions rose but have been generally trading upward since the start of the quarter.
“This was especially true in the US and Asia, where tech stocks captured most of the growth. So far, investors seemed to have shrugged off the escalating trade war rhetoric between the US and many of its trading partners or, at least, discounting the effect it may have on long-term economic growth,” says the WGC.
The council notes that gold has thus far moved in the opposite way. Its price rose by more than 4% in the first few months of the year, only to finish June down by the same percentage.
This downward trend has continued in July as gold dropped almost an additional percentage point. While gold’s volatility spiked in February and April, it has been moving in a relatively low range since.
Gold’s performance has been driven by a combination of factors including a strengthening US dollar, a higher investor threshold for headline risk and soft physical gold demand.
The WGC expects positive, but uneven, global economic growth, as well as the threat of trade wars and its impact on currency, and a rising inflation coupled with an inverted yield curve, to impact on gold ’s performance in the second half of this year.
However, it also believes there are reasons to be optimistic for the second half of the year.
Drivers of the gold price include wealth and economic expansion, which are supportive of jewellery, technology and long-term savings; and market risk and uncertainty, since market downturns often boost investment demand for gold as a safe haven.
The WGC also deems opportunity cost a driver of the gold price, since the price of competing assets such as bonds, currencies and other assets influence investor attitudes towards gold; and momentum and positioning as capital flows and price trends can ignite or dampen gold’s performance.
“We believe the confluence of key trends . . . could be supportive of gold demand,” it stated.