Investment Insights

The upcoming Fed meeting could provide clarity into the intermediate-term price behavior of gold. As uncertainty becomes more prevalent in the future behavior of the Federal Reserve, we examine whether there is any correlation with monetary policy uncertainty/behavior and gold prices.

Following the launch of the AAOIFI Shari’ah Standard on Gold in 2016, we have engaged with Islamic banks and financial institutions to develop the market for Shari’ah-compliant gold-backed products. As part of this, we conducted detailed qualitative and quantitative research across four predominantly Muslim markets: Turkey, Saudi Arabia, United Arab Emirates and Malaysia.

2018 was a very active year across all of our key programmes with many significant events occurring in the market. From major policy announcements through to renewed gold buying from particular quarters, the year was a true reflection of the diversity of what we strive to achieve.

In Q4 2018, as global stock markets experienced their worst quarter since 2009, cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens like gold. However, cryptocurrencies, such as bitcoin, behaved like risky assets and fell while gold rallied.

Against the backdrop of turbulent markets, geopolitical risk and Fed rates hikes, gold closed 2018 on a strong note, outperforming most global asset classes.

As we look ahead, we expect that the interplay between market risk and economic growth in 2019 will drive gold demand. And we explore key trends that will influence its price performance.

The IMF Global Financial Stability report, released on 10 October, highlighted an increase in the level of risk among multiple global metrics. Following its publication, stocks in the US, Europe and Asia lost 4%, 3% and 4% respectively over three days. 

Gold has fallen to a 20-month low amid sharp EM currency depreciation. At these levels, we believe the gold price may bounce back. Consumer demand is likely to be supportive in H2. And short positioning may quickly reverse should one of the many current macroeconomic risks materialise, increasing investment demand.

Gold rose by more than 4% in the first few months of 2018, only to finish June down by the same amount. Gold’s price momentum and investor positioning in derivatives markets accelerated this descent, but we believe that there may be reasons to be optimistic. Key macroeconomic trends developing in the second half of 2018 may spur investor demand and opportunistic buying.