As various commodities plummet over fears of a global slowdown, gold continues to hold tight to its tremendous gains since the start of the year. In its recently-released global outlook for the fourth quarter, Bank of Nova Scotia’s analysts examined the current geopolitical and economic climate and found gold to be well ahead of its investment peers.
The yellow metal rounded up 2018 with an average annual price of $1,268, and Nova Scotia’s team believes the metal will finish this year with an average of $1,400. While a sizeable boost already, the bank expects the metal to average $1,550 in 2020, a massive upgrade over their previous forecast of $1,350. Gold’s price movement has likely played a major part in the bank changing its view, as the metal has persistently held onto the key resistance level of $1,500 and has bounced back from every pullback in short order.
Besides the strong price showing, the bank outlined various factors that point to a bright future for the metal in 2020. Like many other experts, Nova Scotia’s team listed central bank actions as a key ingredient in gold’s climb towards six-year highs. This year has seen a somewhat abrupt shift in the monetary policies of global central banks, which started when the Federal Reserve ended its long-running tightening cycle and began slicing interest rates.
Several central banks around the world, including the European Central Bank, immediately followed suit by cutting their own benchmark rates. Although some countries were already issuing zero or negative-yielding bonds, the domino effect started by the Fed appeared to usher in a new era where non-yielding bonds become the norm, not the exception. This added fuel to existing fears that a global growth slowdown is underway and is happening faster than expected.
Nova Scotia noted that gold and other precious metals have been trading at their highest levels since the eurozone crisis, lending credence to warnings that a domestic or global recession could be on its way. The slowdown in global growth was exacerbated by China’s waning economy, as the world’s top manufacturer continues to suffer the effects of the protracted U.S.-China trade war. Several other leading producers, such as Germany and France, have released factory data that all but affirms a contraction is underway.
A report by the World Gold Council released last week also added an interesting feather in gold’s cap as a hedge against climate-related risks. Issues like pollution and global warming have clung to headlines around the world since the start of the year. The WGC’s report compared gold to other assets in the context of various environmental issues that could become more prominent moving forward and found the metal emerging as an outperfomer, adding to its existing allure as a safe-haven and protection against volatility.