No matter what year it is, gold holds great economic value, not only for investors, but for entire economies. Gold rushed have shaped history, giving rise to entire industries, markets and states. Gold has also proven to be a great way to diversify one's financial portfolio and also behaves as a hedge against inflation. It can provide stability in times of financial crisis and tends to be profitable in the long run.
Let’s take a look at four projections that experts have for gold investors in 2018.
- Growth of the global economy in 2018
The year 2017 saw global economic growth, and financial market experts expect the trend to continue this year with synchronised growth around the world.
In India – the second largest gold market in the world – initiatives such as demonetisation and GST will start to have a positive effect on the economy. Research shows economic growth underpins gold demand. Hence, as incomes go up, demand for gold jewellery, gold-containing technology (smartphones, computers, tablets etc.), and gold coins will escalate.
China – home to the world’s largest gold market – is going to see global integration that will ensure its sustainable growth trajectory. European and the US economies, which are major gold players, are bullish on their respective economic growth as well.
- Tighter monetary policies will make gold lucrative
The US Federal Reserve plans on shrinking its balance sheets. This essentially means that it is going to reduce mortgage-based securities from US$4.5 trillion in 2014 to US$2.5 trillion in 2020. At the same time, the Federal Reserve is expected to raise interest rates in 2018.
With this, the returns on long-term government bonds will reduce and volatility in the financial market will re-emerge, along with the risks. In such a scenario, gold can help investors such as you mitigate risks as it has minimal correlation to other investment classes and is a well-known hedge against inflation and other market uncertainties.
- Frothy asset prices will make investors turn to gold
Asset prices hit multi-year highs in 2017; thus, to generate additional returns, investors took additional risks. Analysts are wary of these inflated asset valuations. Investors are also cautious about their risk exposure in the context of changing central bank policy. If the bubble bursts, the global financial market will see correction.
To safeguard yourself, you could diversify to gold as it has the tendency to outperform other financial assets in times of slowdown.
- Transparency and access to trade gold will build confidence
The financial market has seen transparency in the last decade. Similarly, the gold market has also made great strides in terms of transparency in the past few years and will continue to do so in 2018.
London Metal Exchange launched LMEprecious which is a suite of exchange-traded contracts intended to improve price transparency and efficiency of transacting in the London wholesale market. India is in process of building such an exchange. This will streamline the process of buying and selling gold. In addition, with gold hallmarking becoming a mandatory process, buying gold jewellery, coins and bars have also become more secure than ever.
Gold-backed investment vehicles in US, Germany, Italy, France, UK, Russia, India, China and other important gold markets are making it easier to access gold. These projections are positive for investors and solid reasons why investors like you can consider putting your eggs in the gold basket.