Topics in this section: - Investor jitters should fuel gold demand, despite market surplus - Jewelry spurs demand as central bank buying recovers - Bargain hunting, dollar may trigger gold-jewelry buying - Geopolitical, macro uncertainty may spur investment - Gold-market fundamentals improve, BI model shows
Gold is likely to be in greater demand in 2020, in our view, buoyed by central bank and jewelry purchases and investors using the metal as an insurance asset. The metal's safe-haven appeal could rise if the global economic-growth outlook is rocked by a confirmed China slowdown amid geopolitical tensions and trade wars. This could offset caution over the potential for global interest-rate increases, a dollar rebound and wild cards such as higher scrap volume. Floor-price expectations have come down to about $1,180 an ounce, even as stronger supply may result in a 2020 gold-market surplus, weighing on a price recovery above the $1,366 five-year peak.
Barrick, Newmont, AngloGold Ashanti, Goldcorp, Kinross, Newcrest, Gold Fields, Agnico Eagle, Sibanye, Freeport-McMoRan and Glencore are leading global gold miners.
Jewelry spurs demand as central bank buying recovers
Demand for gold will be less skewed to cyclical consumption in 2019-20 compared with other precious metals such as silver, platinum and palladium, we believe. Jewelry is gold's largest demand driver, making up a 54% share in 2019, based on Metals Focus data, with improving consumer sentiment likely to boost utilization from India and China, as well as the U.S. Net physical gold investment follows, at almost one-third, then net central bank buying (15%) and industrial use (about 8%).
We see official gold holdings rising this year, particularly in emerging markets, as appetite will likely keep recovering. The industrial gold-applications buying trend should also be sustained through 2019-20, as consumption in electronics and decorative use improves, particularly if there's any metal-price weakness on dollar appreciation.
Bargain hunting, dollar may trigger gold-jewelry buying
Gold-jewelry demand could benefit from bargain hunting through 2019-20 if dollar appreciation and improving global economic growth exert any price pressure on the metal. Interest seems to have bottomed out in 2016, when a strong price recovery curbed spending on gold jewelry amid macro-economic challenges and weaker consumer sentiment, particularly from China and India. Jewelry consumption could be headed for a 3% year-over-year increase in 2019 to 2,351 metric tons, based on Metals Focus' Gold Focus data, albeit at a slower pace than 2017's 12% recovery.
Global gold-jewelry consumption could nevertheless stay below its historical average, especially relative to 2013's 2,766 metric tons of fabrication.
Geopolitical, macro uncertainty may spur investment
Gold's safe-haven status could be enhanced by global geopolitical and macroeconomic challenges this year, including "Trumponomics," fears over the health of the Chinese economy -- pending likely tariffs following trade negotiations with the U.S. -- low global interest rates, anticipated inflationary pressure, Brexit chaos and the proliferation of nationalism and populism. This suggests that investment in gold bars and coins could become a refuge for investors, including China and India sources, if the performances of other asset classes (such as equities) suffer.
Physical demand (including gold bars and coins) is expected to marginally increase year-over-year in 2019, following a 8% rise in 2018, based on Metals Focus data.
Gold-market fundamentals improve, BI model shows
Annual gold demand could modestly improve through 2019 to 4,123 metric tons, based on our estimates, which may help reduce the metal's excess supply over world consumption in the period. Yet the market may stay in surplus, at 360 tons at the end of 2018, based on Metals Focus data. Bloomberg Intelligence estimates the level will modestly fall in 2019 to 352 metric tons of gold, though net central bank purchases may decline as recycling volume boosts the metal's total world supply to 4,475 metric tons the same year.
