Should You Hold Gold?

After a minor hiccup in early March, the price of gold is once again above $1,300 an ounce. The price of the yellow metal has increased 2.5% so far in 2019, and analysts are expecting it to rise further in the future on the back of strong demand and lower supply. Let’s take a closer look at what’s in store for gold for the remainder of the year.

The Demand Scenario

According to consulting firm Metals Focus, global gold consumption in 2019 will come in at 4,370 tonnes, the highest since 2015. This would be a slight increase over last year’s consumption of 4,364 tonnes.

The primary driver of an increase in gold consumption this year will be jewelry demand. More specifically, jewelry will account for a 3% increase in gold consumption this year, with India and China being the two biggest markets. Industrial demand is expected to rise 1%, while physical demand for the yellow metal will remain flat year over year.

So, gold demand will remain consistent over last year’s levels in 2019, though a much more substantial increase cannot be ruled out in light of the economic uncertainties prevailing in the global environment. On the other hand, the supply scenario would be much more favourable, and that could lead to an improvement in pricing.

The Supply Scenario

According to Metals Focus, the price of gold will average $1,310 per ounce in 2019 as compared to $1,268 per ounce last year. This would be the highest gold pricing level seen since 2013. That doesn’t look surprising as gold supply is going down and miners have been reducing their exploration budgets.

Gold exploration budgets have been dwindling since 2012 and discoveries have nearly dried up since 2009. In such a scenario, gold supplies can be expected to decline in the future, and that would be a catalyst for pricing.

According to BMO Capital Markets, gold supply levels are expected to remain stagnant through 2020 at levels lower than 2016. This is the reason why gold miners are busy finding ways to integrate their operations to boost production and lower costs.

The Price Forecasts

Several analysts believe that the price of gold will break beyond $1,400-an-ounce this year. According to a survey of analysts by the London Bullion Market Association, two-thirds believe that gold will either hit or surpass the $1,400 an ounce barrier in 2019.

As reported by Mining.com:

As such, it makes sense to stay long gold if you’re holding the yellow metal in your portfolio. The supply crunch and an increase in demand because of end-market uncertainties will eventually lead to higher pricing going forward. Additionally, gold looks well-placed to achieve higher pricing in the long run thanks to the lack of discoveries in the end market.

Given all of these conditions, it is safe to say that gold looks like a safe investment.