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GOLD IN 2018

The Big Story For Investors

The big story for investors in 2017 was the broad-based rally in stocks. Simply by owning equities of any shape or size, they likely made out very nicely. However, 2018 is increasingly shaping up to look like a breakout year for the precious metal.

For investors who want to accumulate gold in the physical market, Rs.27000-mark remains the ideal entry while for those in the futures market, Rs.28000 would be the ideal entry points. Higher side target price points for gold would be around Rs.30500 mark. In whatever circumstances, from a portfolio diversification perspective, at-least 10% should be earmarked for investment in gold.

Beyond this base, there’s encouraging momentum. Gold prices are up roughly 6% in the last six months, which underperforms a gain of 11% for the S&P 500 but is still noteworthy. And since rolling back in early December, gold has surged more than 5% in just a few weeks while the S&P has barely budged

Aside from the charts and asset rotation, there is structural demand that will provide a lift for gold. For starters, look at India, where gold imports surged an amazing 67% in 2017 . The nation is the No. 2 consumer gold market in the world behind China, so that’s an encouraging sign of retail demand. As for China, demand for gold bars through November was up 40% from a year earlier, according to gold portal Kitco. That speaks
to strong momentum.

Another factor to look out for is Federal Reserve monetary policy and the resulting value of the dollar. Low interest rates help the gold price, as there is less lost opportunity cost when it comes to holding non-yielding assets such as gold. Low interest rates also, usually, mean a weaker dollar – so the dollar and gold usually have an inverse relationship.

Many stock-market investors are still optimistic after a great run this year, but it’s undeniable that many traders are ready for what’s next now that tax reform is priced in and the big run for equities looks long in the tooth. It’s natural for the fast money to look for greener pastures when we’ve had a good run, and the turn of the year is a great excuse to move out of stocks and into something else.

Across 2017, gold mining was incredibly anemic, prompting a report from ANZ that noted gold output was “at its lowest point since the financial crisis, with risks only getting greater.” There are a host of factors at play, from cash-strapped companies like Freeport McMoRan closing underperforming sites to new regulatory policies for miners in Indonesia and South Africa. But the collective result is less gold coming out of the
ground, which should benefit gold investors in 2018.