The first quarter of fiscal 2018 was particularly positive to gold investors who saw their wealth appreciate by 9% to $1,329.28 per troy ounce from the comparable of 2017.
The yellow metal was also one of the best performing securities in the second quarter of 2018 though at a slower pace than the previous quarter.
With an average second-quarter price of $1,306.45 per troy ounce, gold went 1.7% down from the same year prior-quarter and was 4% up on a year-over-year basis.
The past is important because it is the base to make our estimates on the price of gold for the future. However, what is also of interest to investors is knowing the trends that influence the performance of the yellow metal.
The World Gold Council has determined the following key drivers for gold in the second half of 2018: global economic growth, impact of trade war on the U.S. dollar; ascending inflation and an inverted yield curve on U.S. Treasury securities.
Investors believe that gold will take advantage of both factors because the commodity has a dual nature.
Global economic growth
A robust economic expansion in China, a cyclical support from harvest and wedding seasons in India and the expected ongoing expansion of the U.S. economy, will impact the rise in the gold price.
The Indian demonetization that occurred at the end of 2016 together with a quietly improving jewelery market in China also will be supportive as the local economies will be driven at a faster growth pace.
Impact of threats of trade war
The ongoing rhetoric over trade agreements will continue to impact the U.S. dollar. It will be interesting to see how this factor in combination with measures of monetary policies in other countries will work on the U.S. dollar. These two factors have strengthened the U.S. dollar over the past few months.
Many economists think that the economic growth in the U.S. will be negatively impacted by the increase in tariffs. However, the effect on the consumer demand of gold will be mitigated by a weakening in the U.S. currency. The performance of the yellow metal is inversely related to the U.S. dollar.
Yield curve
The nominal yield curve on U.S. treasuries is becoming inverted, a precursor to economic deceleration. During periods of recessions, holding the precious metal usually helps investors enhance the value of their wealth.
The World Gold Council foresees a higher price of gold because the use of the yellow metal as an inflation hedge will increase. The risk of higher inflation is not unlikely now that protectionist economic policies are expanding, and companies will pass the bill of augmented tariffs to the final consumer.
(Disclosure: I have no positions in any security mentioned in this article.)
