Three geopolitical trends that might affect gold demand in 2019

News Arnulf Hinkel, financial journalist – 14.02.2019

In the recently published "Gold Outlook 2019", the World Gold Council analysed prevailing international trends and how they could affect demand for gold as an investment. First and foremost, there are various still unsolved geopolitical problems: Brexit, the sovereign debt crisis within the EU, and the protectionist policies of big economies holding the threat of trade wars. The resulting financial market instability could cause increased inflation and a credit crunch, which, empirically speaking, would have a positive impact on the gold price.

US monetary policy and the dollar exchange rate

While gold demand among American investors hardly declined between 2004 and 2007 despite rising key interest rates, the situation changed in 2018, when the US dollar strengthened significantly as a result of the US fiscal policy. After the US economy cooled down considerably in late 2018 and as a result, further interest rate hikes by the Fed turned out far less ambitious than originally planned, the dollar also lost strength. The increased efforts of central banks in emerging markets to diversify exposure to the US dollar also contributes to this trend.

Structural economic reforms in emerging markets

Around 70 per cent of gold purchases are made in growth countries, above all China and India. Both countries are currently undergoing far-reaching structural reforms aimed at increasing general prosperity. In rural areas, these reforms mean modernizing and reducing fiscal and legal barriers, and expanding the economic importance of the countries on a global scale. Traditionally, an increase in private wealth will usually lead to a higher demand for gold.

The World Gold Council believes that all three trends set out above might lead to a stable positive demand for gold, at least in the medium term.

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