While the gold market could trade at the top of its current six-month range in 2019, investors should not expect prices to break their orbit, according to one international research firm.
In a telephone interview with Kitco News, KC Chang, senior economist at IHS Markit, said that his firm continues to see gold prices trading between $1,200 and $1,300 an ounce in 2019, with prices hitting the top of the range in the later part of the year.
“I think there are more upside price risks for gold in 2019 than downside ones,” he said. “In this current environment, prices around $1,200 an ounce would be a good investment opportunity.”
Chang's comments come as gold prices struggle to find mometum, holding critical support around $1,220 an ounce. December gold futures last traded at $1.222.70 an ounce, nearly flat on the day.
However, Chang added that the market is missing one key ingredient that would send prices through $1,300: inflation.
“Inflation expectations will remain well anchored next year,” he said. “If gold is going to break its range, inflation needs to rise well above 3%.”
Although tame inflation won't be enough to drive gold prices out of their range, Chang said that there is enough global financial instability to keep a safe-haven bid in gold through 2019.
In a recent report, IHS economists warned that growing volatility is the latest threat to what they see as weak global economic activity in 2019.
“The recent surge in financial volatility—a de-facto tightening of financial conditions--is an unwelcome addition to these threats to global growth,” the economists said. “Even without a full-blown bear market, the combined effects of policy uncertainty and large financial gyrations are hurting business sentiment and capital spending.”
Looking at U.S. economic growth, IHS sees the domestic economy expanding 2.7% next year, down from 2.9% growth expected this year. The firm said that the U.S. economy will start to slow as the stimulus effects from tax cuts wear off.
Chang noted that a slowdown in the U.S. could impact U.S. interest-rate expectations and in turn U.S. dollar strength, which should prove to be bullish for gold next year. Currently, IHS is forecasting three rate hikes next year.
“The Fed’s decision around three or four rate hikes next year is going to be very much data dependent,” he said. “If markets start to anticipate fewer rate hikes in 2019 and 2020, that could be enough to drive gold out of my forecasted range.”