Let us look at the outlook for gold on each of the above factors. Firstly, gold demand for 2019 is likely to be better (Indian gold demand had fallen sharply in 2018 as per WGC). However, this demand is unlikely to substantially prop up the price of gold from here on. Secondly, what about dollar strength? According to the Federal Reserve, there could be a cap on rate hikes of at the most 2 rounds during 2019. Hawkish rates scenario will drive up the yields on US bonds and simultaneously drive up the Dollar. While dollar may not see a runaway rally as in the past, the Dollar Index is likely to show strength.

Thirdly, the question is whether central banks will debase their currencies further by infusing more liquidity into the system. Currently, the US Fed sits on bonds worth $4.5 trillion while the ECB sits on bonds worth €4.1 trillion. This massive bond portfolio of central banks was largely created post-2008 when these central banks infused liquidity into the system by mopping up bonds. However, the narrative in the US is shifting towards monetary tightening which will imply winding up this portfolio of bonds gradually. The ECB has already stopped fresh bond purchases and the Bank of Japan may also follow suit. Therefore, the only major justification for a rise in gold prices will be geopolitical uncertainty. With the trade war between the US and China reaching a level of rapprochement, the trade war threat could actually reduce in the coming year leading to greater geopolitical certainty. That will mean that while gold will continue to be in demand for its unique qualities, the runaway rally in gold looks quite unlikely at this point of time.