Gold, which often seems to be the most troublesome of precious metals, was enjoying something of a rebound at the end of 2018, but Aneeka Gupta, associate director, WisdomTree explains that performance has been lacklustre towards the end of Q1 2019.
WisdomTree has seen USD300 million in inflows to its gold ETPs so far this year and has total assets under management in gold of USD11.6 billion.
“Gold’s addition in a portfolio is a topic that tends to come up for discussion when there is a fear of a global growth slowdown – owing to its haven status,” Gupta says.
Its sharp rebound over December saw the price shoot up from USD1250 to USD1350 per ounce, but it now hovers at around the USD1300 mark.
“The performance has been lacklustre due to a strong price reversal across cyclical assets such as equity markets, industrial metals and energy and is partly responsible for taking the shine off gold,” Gupta says. “We still believe that, while we are not headed into a recession, there is a strong reason to suggest that there will be a slowdown in global growth and that is always likely to favour safe haven assets such as gold.”
Geopolitical risks are keeping the markets on tenterhooks, Gupta says, while volatility is at its lowest level since 2009 which suggests that the markets are a bit complacent.
“Markets are getting comfortable that central banks globally are becoming more dovish in their monetary policy stance,” Gupta says. While there has been a strong rally in cyclical assets, she points out that global macroeconomic data is pointing in the direction of a slowdown that should benefit gold prices.
The US/China trade war has also had its effect on gold, with Gupta commenting that there is a negative correlation between gold and the USD/CNY exchange rate.
“We believe that if we get a resolution of the US/China trade deal it will benefit and alleviate the pressure on gold,” she says.
Gupta believes that both President Xi and President Trump want a deal. “Trump believed he could insulate the US economy from the trade war disruptions.”
US Equity markets performed well in 2018 on the back of the fiscal tax boost, Gupta says. “But their economy is struggling with supply disruption within trade and the US is realising that it is affecting their economy as well and are taking China more seriously.”
Gupta comments that the trade wars were not about commodities, where agreements have already successfully been established, but more about intellectual property rights and technology transfer.
Gupta believes there is a real chance of resolution of the trade war, particularly with Trump facing the uphill task of fighting a 2020 presidential campaign. “We believe there will be a trade deal within the first half of 2019,” Gupta says but predicts it is likely to be tricky.