Gold price in high heaven
As 2019 comes to an end, let’s take a look at how gold price has performed. Looking back, 2019 will be remembered for a year of great uncertainties. The protracted trade war between US and China continued to rattle global economy. Brexit continued to drag on at this point of writing. And then the civil unrests in Hong Kong exploded out of nowhere in the middle of the year.
Amid the turmoil, gold price went on a rampage to reach a euphoric high of USD1544 per ounce on 3 September 2019. This is a remarkable surge of 20% since January 2019. Of course, this was still way off the peak of USD1900 per ounce seen in 2011, but current form of gold price reflected the resilience of the yellow metal.
Since the high seen in September, gold price had cooled off quite a bit. But a few factors could provide critical support for gold price in the coming months.
Gold price rally to continue?
It remains to be seen whether the rally for gold price will continue right into 2020. But the macroeconomic condition certainly lend support for continued momentum in gold price. Global trade tensions have not reduced and there is not really light at end of tunnel in sight between US and China. Risk of no-deal Brexit remains a possibility while the chaos in Hong Kong will continue to fuel flight to safety among the wealthy in Hong Kong.
Although most people will agree that the current situation does not represent a recession, the global growth outlook remains pretty challenging. Because of this, the US Federal Reserve cut interest rates three times in 2019. On looking back, the cut in interest rates could have led to the surge in gold price in 2019. This is because gold does not yield interest. Thus, a lower interest rate environment will have a bullish effect on gold price.
Long seen as a safe haven, gold bullion is viewed as the best asset to hold in times of uncertainties. In fact, gold price surged during the period of The Great Financial Crisis to reach a peak of USD1,900 per ounce in 2011. The euphoria in the yellow metal was largely driven by the chaos in the financial markets.
Will gold price smash to another new high? To this end, I don’t see why not as the world has not seen another alternative safe haven for financial assets. In 2016, the crash of China stock market, Brexit and the US Presidential Election saw gold price surging from USD1100 to USD1300 per ounce within a year. Therefore, it is only a matter of time that gold price is absolutely capable of staging another magnificent run.
Gold demand trends
Although governments had decoupled gold from the monetary system, the precious metal still hold a tremendous influence on central banks, which had been buying gold lately. According to World Gold Council, global gold demand jumped to 2181.7 tonnes in 1H2019, up 8% year-on-year. The strong showing was due to record buying by central banks.
The data from World Gold Council indicates that central banks’ purchases of bullion provided support for gold price. The probable reasons for the sustained buying interest from central banks in gold are diversification purposes and the desire to hold a safe and liquid asset.
When it comes to owning gold and silver bullion, one must have the right mentality. The purposes of buying bullion should be primarily for wealth preservation. Thus, one should hold allocate about 10% to 20% of his wealth in bullion. The prospects of gold bullion in the long-term is still fundamentally sound because gold remains a significant part of many central banks’ reserves.
Conclusion
Nobody knows what the future holds and certainly, nobody can predict how the stock market will fare in the future. What we can do is to mitigate the risks and let the upside take care of itself.
The prospects of gold bullion in the long-term is still fundamentally sound because gold remains a significant part of many central banks’ reserves. In this regard, I foresee that gold price will continue to rise moderately in 2020.
In Singapore, the gold market ecosystem grew substantially with the removal of GST on investment grade precious metals in 2012. Being a country with low crime rate and strong jurisdiction system, Singapore is viewed by many international wealth builders to be the best place to buy and store gold bullion.
If you are an international investor, now may be the best time to start transferring your wealth out of the financial system by buying gold and silver bullion.
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