Gold set to gain from retail, geopolitical risks, hedging

JOHANNESBURG (miningweekly.com) – The gold price is expected to increase in the year ahead, driven by stronger interest from Asian retail investors and consistent interest in global gold exchange-traded funds, according to research firm Thomson Reuters GFMS.

The firm highlighted on Thursday that the efficient frontier theory further supported additional investment in gold, as well as the desire to hedge against an equities meltdown.

It also outlined that geopolitical tensions, such as the recent talks between US President Donald Trump and North Korea leader Kim Jong-un were again expected to be an important factor supporting gold prices, while US monetary policy tightening would continue to weigh on gold.

“Equities are probably neutral to mildly bullish and those who believe in persistent equity strength may shun gold.

“When equity markets do start to slide, gold can, in the first instance, come down as it is cashed in against the possibility of margin calls,” the firm said.

Thomson Reuters’ predictions factored in three federal funds rate hikes for 2018, though it should be noted that two issues threaten that schedule: inflation and tax reform.

Some fear the recent passing of a major tax overhaul by the US Senate and Congress could overheat the economy, with asset valuation already high.

The Federal Reserve may respond to what it perceives as a precariously hot economy with more aggressive monetary tightening, which would have an adverse effect on gold.

Conversely, persistently low inflation may serve as rationale for looser monetary policies in 2018, easing the Federal Reserve’s monetary grip on the yellow metal.

“On balance, we believe that the gold price is likely to enjoy stronger tailwinds than headwinds this year,” says Thomson Reuters GFMS.

Gold traded around $1 350/oz last year.