Lower imports from major gold consumers -- India and China -- also reflects weaker consumer demand
2019 has been a good one for gold and despite the recent correction prices are still up nearly 14 percent since start of the year. With just over a month before the year ends, market players are now trying to form an outlook for 2020.
The story doing rounds since November 28 is that huge bets were placed in the options market that gold could triple to $4,000 an ounce. About 5,000 lots for a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands. The bets were sold at $3.50 an ounce.
The bullish bets show optimism that gold price may see more upside in month to come. A vast number of factors also support this view. Slowdown in US and major global economies, US led global trade war, record low interest rate in major countries and increased geopolitical tensions are likely to increase gold’s safe haven appeal.
US and China are working on Phase I of a trade deal, however there are wide differences which may take time to iron out and talks could drag on. Central banks are likely to keep interest rate low unless economic activity regains its lost vigour. Anti-government protests are intensifying across the globe and while they are yet to garner enough attention, it could turn out to be a humongous issue.
However, there are some hindrances as well. The tenacity of US equity market, dollar’s outperformance and weaker demand from India and China are some of the factors challenging gold's up move.
US equity market has hit record high levels despite challenges to domestic and global economy. The divergence between the Fed and other central banks monetary policy and outperformance of the US economy continues to support the dollar.
Lower imports from major gold consumers -- India and China -- also reflects weaker consumer demand. China’s gold imports fell for a second month in October to the lowest level since July.
So, it seems that gold is set for a volatile ride next year, but there are few events that could shape its price performance next year and this includes outcome of US-China trade negotiations, Brexit and US Presidential elections. We enter the year with US and China locked in trade negotiations followed by a January 31 deadline for Britain to exit the European Union. US Presidential elections will be a litmus test for Donald Trump’s pro-US policies.
(The author is VP- Head Commodity Research at Kotak Securities)Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.