Some thoughts on commodities with gold near $1300

As gold pauses for breath below the key $1300 handle and WTI crude oil trades around $52, we are wondering what 2019 will bring for these commodities. On the one hand, the outlook for gold and other metals look bullish in 2019. The fact that the Fed has stopped hiking interest rates should be good news for noninterest-bearing and low-yielding assets, such as gold, silver and copper. What’s more, the Fed’s likely inaction this year should help to devalue the dollar against her major rivals. This should also help to boost these buck-denominated commodities. Furthermore, the prospects of a stock market correction should help to keep haven assets such as gold underpinned. But on the other hand, the fact that all the other major central banks are meanwhile in no rush to raise interest rates means there is no real alternative currency that yield-seeking investors will be piling into yet. So, the dollar could remain supported for a while yet, even if it has weakened a little over the past couple of months or so. That could change, however, once – sorry, IF – there is real progress made on Brexit to allow the Bank of England and, to a lesser degree, the European Central Bank to tighten their policies. Only then could the Dollar Index start to break down more aggressively, boosting the metals’ prices as a result. Meanwhile it could be a different story for crude oil, for the black stuff faces uncertain times ahead due to expectations for lower demand and stronger non-OPEC supply growth. While there’s the potential for a bit of recovery in the very short-term outlook, as the OPEC tries to tighten the market, crude prices are likely to come under pressure again later in the year as the potential for higher prices encourage more (shale oil) production.

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