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Gold prices seem poised for recovery in 2019

17 Dec 2018

By David Brough

December 17, 2018 - Gold prices seem set to recover in 2019, buoyed by an expected slowdown in interest rate rises and fears of a looming recession in the United States.

For UK jewellers and jewellery manufacturers, risks that the pound will fall further against the dollar, due to chaos over Brexit, could lead to increased costs of restocking precious metals, diamonds and other gemstones.

For gold, previous expectations of a series of further interest rate rises in the United States in 2019, have now dimmed, pressured by data, including bond market signals, indicating that the world’s largest economy is losing momentum.

A U.S. rate increase is widely expected in December, but the Fed (U.S. central bank) is expected to slow down any further rate increases in 2019.

This will likely support gold prices, as bullion bears no yield.

When U.S. interest rates rise, alternative assets that do bear a yield, tend to see more demand.

Increased U.S. stock market volatility, and fears that a prolonged equities boom could be coming to an end, linked to worries over the impact of U.S.-China trade clashes, are giving new impetus to gold.

Lawrie Williams, gold market commentator for bullion dealer Sharps Pixley, wrote in December: “We don’t necessarily see a spectacular and sudden rise in price, but a steady one which should see it through $1,250 (an ounce), and perhaps back through $1,300 by the year end -- and onwards and upwards in 2019, particularly if the U.S. Federal Reserve (central bank) eases up on its proposed interest rate normalization plans, which currently seems more likely than not.”

Williams added, “We consider that gold will increasingly appear on institutions’ and individuals’ investment horizons and price momentum will continue to build into 2019.  How far this will take us on the upwards path remains to be seen.”

TD Securities looks for gold to top $1,300 an ounce next year on ideas the U.S. central bank will limit rate rises and the dollar will weaken.

Gold was flat at $1,238.14 an ounce on December 17.

SAFE HAVEN

Gold is more appealing to investors in times of chaos and turbulence.

Its appeal as a “safe haven” asset could be triggered again in 2019 if stock markets correct sharply lower and fears of a U.S. recession mount.

For UK gold savers, heightened confusion over Brexit prospects could drive demand for the yellow metal.

“Buying gold when you fear trouble makes sense. It’s what people did ahead of the 2016 Brexit referendum,” wrote Adrian Ash in a market column for dealer BullionVault.

SMALL DIAMOND PRICES FALLING

For UK jewellers looking to restock small diamonds, prices risk falling further in 2019, continuing a downwards trend seen in 2018 driven by oversupply and weaker demand.

Prices of some categories of small natural diamonds dropped by up to 20 percent in 2018, Rapaport reported.

The addition of three new diamond mines in 2017 resulted in an excess of supply.

On the demand side, manufacturers in India, where most diamonds are processed, became cautious due to tighter credit and a weakening of the rupee against the dollar.

Some U.S. retailers are shying away from small natural diamonds (melee) because of the threat of undisclosed synthetics, wrote Rapaport analyst Avi Krawitz.

“These factors will continue to exert pressure on the small-stone market in the long term,” he added.

Disclaimer: this column should not be seen as advice or a recommendation for investment. Any opinions expressed are those of the author.

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