In its ‘2019 Outlook' report, the WGC said geopolitical risks that weighed on global economic growth in the second half of 2018 would likely carry through to 2019. That uncertainty would be a boon for gold prices, as investor demand is expected to fire up for gold's effective hedging role.
Although the WGC did not weigh-in on the specific price movement potential for the yellow metal, its analysis came at a time when gold prices have been holding steady near six-month highs and are ostensibly aimed at the US$1,300/oz mark. Spot gold traded at $1,287.60 in New York on Friday.
"We believe that in 2019 global investors will continue to favour gold as an effective diversifier and hedge against systemic risk. And we see higher levels of risk and uncertainty on multiple global metrics," the WGC said.
The outlook contrasted with gold's price performance in 2018, which saw significant headwinds such as a strong greenback, successive rate hikes by the US Federal Reserve, as well as accommodative policies from other central banks. The US economy was further boosted by the Trump administration's tax cuts, which helped fuel positive investor sentiment and pushed US stock prices higher through to the start of October.
However, the WGC said as geopolitical and macroeconomic risks increased, emerging market stocks pulled back and developed market stocks ultimately followed.
This resulted in short-covering in gold, with its price ending the year near $1,280/oz, outperforming most global assets, the WGC said, despite reflecting a 1% year-on-year price decline.
Increased market uncertainty and protectionist economic policies were expected to make gold more attractive as a hedge, but higher interest rates and US dollar strength impacts would be muted because of the Fed's more neutral stance.
"Protectionist policies are inherently inflationary - either as a result of higher labour and manufacturing costs, or as a result of higher tariffs imposed to promote local producers over foreign ones. They are also expected to have a negative effect on long-term growth," the council said.
Structural economic reforms in key markets would continue to support the demand for gold in jewellery, technology and as a means of savings, the WGC said.
Despite 2018 recording net positive flows into gold-backed ETFs, North American funds suffered significant outflows in the second and third quarters, and the trend only reversed in the fourth quarter as risks started to intensify.
Volatility metrics had also started to creep up, with the VIX jumping from an average of 13 in the September-quarter to an average of 21 in the last quarter of 2018.
The analysts also noted the market was signalling a growing risk of a recession as the US yield curve flattened.
"The 2s/10s curve currently stands at 13bps, a level of curve flattening last seen before the 2008 financial crisis, with some economists predicting its inversion in the first half of 2019. While an inverted yield curve does not cause recessions, it has generally preceded them - albeit with a long lead," the WGC said.
"In the US the 10-year Treasury yield is 1.5% below its 2008 pre-Lehman crisis level, providing investors less cushion in case of further market volatility," the analysts said.