By John McDonald
Gold values continue to rise as demand for the safe-haven asset remains strong at the close of 2019. Analysts say gold and other precious metals are likely to have another “golden year” in 2020.
2019 has been a tumultuous year for the financial markets despite many historic milestone highs. As a result, the year has been a “golden” one for gold and other precious metals, wrote ING analysts in a recent report that included extremely positive forecasts for gold values in 2020.
The analysts cited “escalated trade disputes” between the United States and China as one of the primary drivers of gold values. “We expect the trend to continue in 2020 as most issues are still unresolved, even though both the U.S. and China have been making efforts to prevent the situation from getting any worse,” they wrote.
Although increased prices could begin to weigh on physical gold demand in emerging economies like China and Asia, that weight will likely be counterbalanced for U.S. investors by a stronger U.S. dollar. The ING team predicted Indian demand for gold could decline in 2020 due to higher duties on gold imports that will place downward pressure on demand for the metal.
Other Precious Metals Lifted with Gold
2019 has not just been a good year for gold. Palladium demand has also risen and, with it, palladium value.
This is due in large part to the U.S.-China trade tensions, since palladium is used to make important components of catalytic converters and the automotive industry has been affected by the ongoing tariff disputes. However, the palladium cycle tends to be more volatile than gold since when this metal’s price rises too quickly, the auto and electronics industries tend to identify acceptable substitutes for the metal. This makes it more likely that palladium will stabilize in 2020 rather than following gold’s steep upward trajectory.
ING analysts warned, “The [palladium] momentum may come under risk in 2020…and some of palladium’s demand could be switched to platinum for gasoline vehicles. The key issue is that up until now, there has been little evidence of substitution taking place.” They concluded short-term demand will remain strong, but in the “longer term, we may see growing concern over demand destruction.”
Pressure on International Gold Demand to Shape 2020 Values
ING analysts seem quite certain gold values are unlikely to fall in the New Year, although they did warn that if the People’s Bank of China and the gold-buying population in India both “put a brake on gold-buying,” values might not skyrocket in 2020.
The Chinese central bank purchased about 100 tons of gold in 2019, which played a major role in bolstering yellow metal values. Other central banks around the world also began adding to their gold reserves, especially in emerging markets.
Suki Cooper, a precious metals analyst at Standard Chartered Bank, said that she expects this type of purchase to continue in “as protectionist policies and geopolitical concerns add to demand.” Although China may slow its purchasing rate in 2020, it is unlikely other countries with less substantial supplies will feel less pressure to continue buying.