Happy days are here again for gold; and with the market already around $1,280 an ounce, the bulls are readying for a rampage. However, given the current and emerging circumstances, the upside price movement will be real but limited.

In 2018, the precious metal flattered to deceive when, after rising to the year’s high sometime in late January, it disappointed those with bullish bets following a slump in the second quarter. The market did not recover almost until the last quarter of the year.

Gold’s performance during the year gone by was substantially circumscribed by a combination of a strong dollar, robust equity market, fairly benign inflation situation (despite escalating crude oil prices for some time) and weak consumption demand. Import demand in major consuming markets, including China, India and Turkey was enervated because high local prices led to demand compression.

Without doubt, the dollar benefited from the tightening of the largely accommodative monetary policy of the US Federal Reserve and steady hike in interest rates during the year. With the US economy doing well and stock market rising, speculative financial investors exited gold in droves. The famed safe haven status of the yellow metal was all but forgotten.

Change in sentient

The last quarter saw the sentiment undergo a change when global growth concerns came to the fore; and notwithstanding a rate hike in December, the metal showed a robust rise in prices.

What’s the outlook for 2019? In the global commodity market, we are likely to see gold regain its glitter and move past the psychological $1,300/oz mark. Gold supportive factors are beginning to take hold.

For one, the dollar is unlikely to strengthen any more, and, if anything, is poised to weaken given the dampened interest rate projections for 2019. A depreciated dollar is sure to boost the yellow metal; and little wonder, the short positions in gold have been greatly reduced.

Second, the metal will reassert its safe haven status because of flight to safety. With growth concerns and unabated trade friction (despite a 90-day truce currently between the US and China), which will adversely affect the equity market, funds are going to seek refuge in their favourite asset. ETF inflows are sure to rise. The demand side will continue to be a matter of concern particularly when we factor in the Chinese slowdown and an anticipated US slowdown in the second half of 2019. The political scene in India will remain volatile in the first half of the year given that general elections are slated for May 2019. How events will pan out over the coming months remains to be seen.

On balance, global economic uncertainties including event risks are sure to provide a shot in the arm for gold. After taking into account the recent rally, the metal is expected to breach the $1,300/oz mark and gravitate towards $1,350/oz levels.

In the Indian market the metal is trading around ₹30,500 per 10 grams. A certain amount of buyer resistance can be discerned particularly because of the less-than-satisfactory performance of the farm sector and weakened rural demand.

There are overt and covert attempts to get the customs duty on gold reduced from the current 10 per cent. New Delhi should not succumb to the temptation and send wrong signals to the nation at large. If anything, policy makers must ensure greater transparency in the gold trade and extract maximum revenue from the sector.

The writer is a policy commentator and commodities market specialist. Views are personal

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