What the World Gold Council Predicts for Gold in 2018

After its biggest jump since 2010, the World Gold Council outlined several factors that could propel gold even higher in 2018.

Gold rounded up the previous year with a 13.5% gain, making it the second-best performing asset of 2017 after stocks according to an article on BusinessDay. After its biggest jump since 2010, the World Gold Council outlined several factors that could propel the yellow metal even higher in 2018.

Aside from a belief that gold's gains are sustainable, author of the article Allan Seccombe writes the metal also benefited from geopolitical flareups, which included tensions in the Middle East as well as the U.S.-North Korea conflict. Aiding gold further were expensive stock valuations and a weaker dollar, the latter having plunged towards the end of the year. The greenback appears set to continue along that path in 2018, having recently reached a three-year low.

The WGC said that the dollar's decline will be perpetuated by market expectations of a global recovery which outpaces U.S. growth. In response, central banks around the world would look to quickly unwind their loose monetary policies, said the council. Although higher rates are seen as a negative for gold, Seccombe writes a reduction in quantitative easing worldwide would increase volatility, sending investors towards the safe haven of gold.

Global growth is a key factor that could underpin the price of gold in the new year states the article. A rise in incomes leads to more demand for physical gold in the form of jewelry, as well as industrial demand for gold-containing technology, such as smartphones and tablets. Together with expanding economies in the U.S. and the EU, a shift in China's economy from investment-driven growth to a consumption-based one should act as a major boon for gold.

The WGC added an overheated equity market to the list of potential tailwinds. Amid concerns that a correction in equities is looming, the council said that investors could particularly benefit from exposure to gold in order to protect themselves against major losses. Greater ease of access to gold, facilitated by various platforms, is also expected to boost demand for the metal.

Noting that the forecast for gold in 2018 has thus far only been modestly higher, Sharps Pixley CEO Ross Norman said that gold has rarely been more important to own. To Norman, the key for any gold investor is patience – the CEO compared gold's current price elasticity to that of the 1990s, reminding us that the turbulent 2000s followed after.

Stressing that the best is yet to come for gold, Norman predicted an average of $1,358 an ounce in 2018, adding that it could climb to $1,400 at some point during the year.

Gold on Track for Best Year Since 2010

A struggling U.S. Dollar helped boost gold at end of year, acting as the metal's biggest driver.

As seen on Reuters, gold recently hit its highest level in 2 and a half months, putting it on track to its best year since 2010. The metal rebounded towards the end of the year due to a myriad of factors, most of which, according to the article, had to do with the U.S. dollar.

The greenback had a difficult year as several geopolitical events subdued it. Aside from increasing the appeal of owning gold, the article states that the U.S.-North Korea conflict also harmed the dollar, giving more ground to the yellow metal.

Persistent low inflation in the U.S. remains a significant headwind for the dollar. The article references Georgette Boele, an analyst at ABN Amro, who said that inflation concerns allowed gold to thrive even after three interest rate hikes by the Fed in 2017. The same concerns have also impacted market sentiment, letting gold hold its ground against rate hike predictions in 2018.

Boele added that the dollar remains the most important driver of gold prices, followed by yields. Aside from a dollar that didn't profit from successive rate hikes, 2017 also saw weak trade and meager yields, both of which bolstered gold. While Boele said that a recovery in the dollar could harm gold prices in 2018, it's worth noting that the issues placing pressure on the greenback are still ongoing.

As the dollar had its worst showing in three months with a potential to post its worst year since 2003, gold breached the $1,300 level to hit $1,302 an ounce this past Friday afternoon. The article notes that ScotiaMocatta's technical team pointed to $1,306, gold's October high, as the next level gold could capture before the year ends.

The analysts said that gold has benefited from technically driven momentum, adding that the metal broke its 100-day moving average in a markedly positive development. With enough strength in the closing days of 2017, gold is poised to have its best month since August.

Other precious metals also enjoyed a favorable year, with palladium's gains standing out the most. The metal recently hit $1,072, its highest level since February 2001, amid worries over availability after years of market deficit. Palladium enjoyed an unusually large premium over platinum in the fourth quarter, with the latter rising 3.8% this year.

Silver's gains were somewhat higher, having risen 6.5% so far this year, last closing at $16.97 an ounce.