Looking ahead, the WGC believes that investors, including central banks, will face an increasing set of new geopolitical concerns. “In addition, the very low level of interest rates worldwide will likely keep stock prices high and valuations at extreme levels,” the WGC said in its report. “And although investors may not step away from risk assets, anecdotal evidence suggests they are increasing exposure to safe-haven assets like gold as a means to hedge their portfolios,” the WGC added.

Thus, momentum and speculative positioning may keep volatility in gold prices elevated. “And that gold price volatility, as well as expectations of weaker economic growth, may result in softer consumer demand in the near term but structural economic reforms in India and China will support demand in the long term,” the WGC said.

Market surveys indicate the majority of economists expect positive growth in 2020 for most countries, with a few forecasting contractions in major economies by 2021 or 2022, according to the WGC. However, median forecasts also show an expectation of softer global economic growth relative to 2019. “This, combined with gold price volatility at or above the current levels may discourage jewellery consumers and cause technology demand to soften,” the WGC highlighted.

In the case of China, one of the biggest consumers of gold, the WGC is of the view that the slowdown in the economic growth and rising staples’ prices have been squeezing consumers’ budgets. While ostensible progress in trade negotiations with the U.S. may restore some confidence, uncertainty lingers.

“With tighter budgets and higher expenditure on staple goods, consumers will likely limit their consumption of luxury items, putting pressure on China’s jewellery demand,” said the WGC.

“In addition, demand from younger consumers is shifting towards innovative jewellery pieces with fashionable designs and lighter weights—a divergence in sales of traditional and innovative products that we expect will continue in 2020,” the WGC added.

In the case of India, which is also one of the world’s largest gold consumers, price volatility and higher taxes may deter consumers. While the goods and services tax (GST), introduced in 2017, rose last year across many categories, the gold import duty increased from 10% to 12.5%. “Until tax cuts are introduced as a credible incentive to spur economic growth—the infrastructure for which may not be available until 2021—higher taxes are exacerbating the impact of the record high gold price (local) on consumption,” said the WGC.

While the introduction of mandatory hallmarking for gold jewellery at the beginning of the year may enhance consumer trust, potential initial disruption should not be ignored. “In all, we believe consumer and gold trade sentiment may remain soft through 2020,” the WGC cautioned.

Further, in India, policy reforms designed to bring transparency and an orderly trade structure to many sectors of the economy are expected to improve confidence, remove inefficiencies and promote growth, the WGC report said. “We expect these factors to be a long-term positive for gold demand, although their effects may take time to become apparent,” the report added.

The immediate trigger for gold prices is the escalating tensions in the Middle East. The WGC highlighted that gold rallied 4% in December 2019, increasing by an additional 6% by January 7 this year. “While we believe there are various reasons for this move, tensions in the Middle East linked to the U.S.-Iran confrontation ultimately pushed the gold price to an almost seven-year high in early January,” said the WGC.

Subsequent comments by U.S. President Donald Trump—aimed to ease concerns—pushed the price down to $1,560–$1,550 per ounce (₹41,275.2–₹41,073.9 per tola) as of January 10. Yet, gold remains 2.6% higher than it was at the end of 2019.

US Iran tension

Price volatility, taxes may deter Indian consumers: World Gold Council