The share of emerging markets in total gold demand has risen to 70 percent over the past five years, as measured by annual gold flows, while confidence in the U.S. economic engine and the U.S. dollar could crumble in the coming months.
Gold could be in the early stages of a new bull market – one that could soon pick up momentum on a U.S. dollar basis as well, according to the latest edition of «In Gold We Trust,» an annual report on gold investing published since 2007 by Incrementum, an independent investment and asset management company based in Liechtenstein.
The report highlighted that 2018 as a whole was positive for gold in most world currencies. Only safe-haven currencies (USD, CHF, JPY) recorded slight losses. It added that the influence of emerging markets on gold demand has grown significantly in recent years.
«In this respect, the historically inverse relationship between the US dollar and the gold price could weaken in the future,» the report said, highlighting that in 2020, half of global GDP will be generated by emerging economies, compared with only 19 percent in 2000.
Breakdown in Trust
According to Ronald-Peter Stöferle and Mark Valek, the report's authors, the breakdown of trust in the international monetary order is manifesting itself in the highest gold purchases by central banks since 1971 and the ongoing trend to repatriate gold reserves.
«Popular trust in the idea that monetary policies can sustain growth and employment and that central banks have inflation under control will be seriously tested in the next recession,» the pair said, highlighting gold's long history as a universal reserve asset and a portfolio stabilizer.
A New Bull Market?
«Conditions for the establishment of the new bull market seem excellent from a technical point of view,» Incrementum said in the report.
The yellow metal is currently in a «bearish stance» but after the typical summer lull, a surge towards $1,500 by spring 2020 is likely, driven by investor demand once the technical rubicon level of $1,360 is breached, the report said, adding that $1,800 is within reach in the medium-term.
