The World Gold Council (WGC) believes that if global economic growth slows rapidly or risky assets fall sharply, the inflows into the gold market may be comparable to those during the 2008-2009 financial crisis.
Gold's recent surge has excited bulls, but some investors are worried about the sustainability of such a surge.
The World Gold Council (WGC) believes that geopolitical uncertainties will not have much impact on gold prices in 2019. But as economic growth weakens, precious metals will become a significant hedge asset.
John Reade, chief market strategist at WGC, argues that there is potential in the gold market, because as economic and geopolitical uncertainties in 2019 may cause financial market volatility, investors will have fewer defensive assets to choose from.
He explained that for most of 2018, investors were looking for "safe havens" in the dollar and the stock market. However, as we move towards 2019, financial market conditions will begin to change dramatically.
Reade said in its outlook report for 2019: "Gold is a high-quality, liquid asset with strong potential for strong returns. It is also an effective diversification tool, especially when other assets fall sharply. History has shown that gold can improve the long-term performance of portfolios. "
However, it is not just the diversification of retail investors that will drive gold prices up next year. Reade said the continued increase in central bank holdings was also a major factor.
Last year, central banks increased their gold holdings at the fastest rate in nearly three years. According to WGC data, central banks worldwide increased their holdings of 341.3 tons of gold last year. In 2018, Russia, Turkey and Kazakhstan have also been increasing their gold reserves, and the Polish central bank has joined the ranks, increasing its gold reserves from 13.7 tons to 116.7 tons. Hungary's central bank's gold reserves surged 10 times to 31.5 tons. In the first eight months of this year, the Mongolian Central Bank increased its holdings of 12.2 tons of gold.
Reade said: "Reserve asset managers at central banks are aware that a large portion of their foreign exchange reserves are in the US dollar. If you're looking for alternatives to the dollar, I think gold looks more attractive than it did 10 or 15 years ago. If you look at other reserve currencies, they all have problems.
Reade added that he expected central banks'gold reserves to continue to grow by 2019.