So much was stacked against the price of gold going up in 2018. There were virtually fewer new investors and those that existed refused to sell gold at the price it was valued at. 2018 was not an exciting year. The price of gold barely moved by 10% since the beginning of the new year. In Euro and Pounds gold crept back to the price it ended in December 2017. The move in US dollars was greater but still not as much as it could have had the market been more robust. Overall the metal traded 5% lower than it did by the end of 2017. Still gold performed well in 2018.
How so?
#1. The demand for gold dropped in 2018.
When you add gold demand for jewellery, dental applications, technology and industrial applications as well as central banks. The first 9 months were at their lowest since the 2008 global recession.
#2. Big money investors put their money elsewhere and shunned gold. This kept the gold-backed ETF from growing. ,,
#3. Private investors also kept away from gold, which means there were fewer gold coins and bars sold in 2018.
On the other side, supply from gold mining grew. The global output in 2018 hit a new all-time record. The drop in the output from the number 1 mining country China, was outweighed by high gold prices in Yuans boosting output in Australia, Russia and Canada.
The US dollar has been a big headwind rising against other major currencies and forcing gold to drop by 5%. This is due to the US Fed raising interest rates. Stock markets neared all-time record highs effectively stifling the price of gold.
In summary gold faced:
1. Weak demand
2. Bearish speculators
3. A rising dollar
4. Higher interest rates
5. Rising global stock markets
Looking at all that the price of gold should have fallen considerably but it held firm. Why did it? The simple answer is: Politics.
The price of gold is affected by political instability. When there is some threat, like the US-China trade war the price of gold goes up. That was not the only geopolitical instability that affected the price of this precious metal. The worsening relationship between Russia and the rest of the Western world affected the price of gold, so did the turmoil over oil prices. Because of these risks existing investors held on to their gold as insurance in case things got worse and they might end up needing their gold. The large scale buying of gold by central banks also gave the impression that governments were gearing up for some major catastrophe.
As far as politics go, nothing much has changed. We are seeing a steady fracturing of democracy and this could boost the price of gold in 2019.
Sources:
- https://www.moneyweb.co.za/mineweb/whats-behind-the-drop-in-gold-and-platinum/
- https://uk.reuters.com/article/global-precious/precious-gold-prices-rise-on-subdued-dollar-fed-stance-limits-gains-idUKL3N20H1U8