Gold prices are expected to rise in 2021; stay invested for now, analysts say
Despite the stellar run in calendar year 2020 (CY20), gold remains an attractive investment for 2021 with prices likely to rise further in the new year, analysts say. Investors, they think, had better stay in the yellow metal for now.
According to data from the World Gold Council (WGC), the price of gold hit a high of $2,067 per ounce (oz) in August 2020 as investors rushed into the yellow metal as a investment refuge in the context of the Covid-19 pandemic which has brought economic activity to a standstill. The accommodative policies of most central banks around the world also meant that money continued to flow into this asset class.
However, the subsequent reopening and a gradual recovery in economic activity has seen the price of the yellow metal slide to around $1,857 per ounce (oz) now. Even then, it has been one of the best performing asset classes year-to-date (YTD) with a price increase of 28% during CY20.
“Another reason why gold has rallied is the decline in real US dollar rates. There is currently a lot of talk about how bond yields have not risen along with inflation expectations as bullion prices have normalized since March’s sell-off.A technical point to be aware of about gold is the possibility of a price spike caused by short pressure on bullion banks which are a bullion market. The data shows that gold futures owners are increasingly choosing to take delivery of physical gold when the futures contracts expire,” says Christopher Wood, Global Head of Equity Strategy at Jefferies.
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As the economic recovery gains momentum, analysts expect the US dollar (USD) to weaken further, which will benefit gold prices. Typically, investors turn to gold as a safe haven when fiat currencies – a currency that is not backed by a commodity such as gold – appear under threat. A weaker U.S. dollar can be a worrying sign for U.S. consumers and for overseas manufacturers who depend on U.S. demand, but it’s likely a good sign for anyone investing in precious metals, analysts say.
“We expect the US dollar to weaken slightly as the global economy continues to recover. Investors should consider diversifying their portfolios to gain exposure to assets denominated in other currencies,” JP Morgan analysts wrote in their recent Outlook 2021 report.
Going forward, investors should focus on real US rates to determine the trajectory of the price of gold, analysts suggest. According to them, the main risk to a positive view of commodities would come from a much weaker than expected growth environment, which could be caused by new blockages triggered by a negative development of the Covid-19 pandemic.
“We believe that any near-term pullback in gold prices due to Covid-19 vaccine approvals and deployment is a good entry point as the economy remains fragile and post-pandemic recovery will be gradual at best. , meaning a low rate environment and a high gold price environment is here to stay at least for the next few years. The risks in our view are a faster-than-expected U.S. economic recovery, a more hawkish U.S. Fed, and continued weakness in retail gold demand,” Credit Suisse’s Nick Herbert and Patrick Collier wrote in a Dec. 16 report. .
Credit Suisse expects gold to continue its upward trajectory and average $2,100/oz in 2021 – up 13% from current levels – peaking at $2,200/oz in the third quarter of CY21 (Q3CY21), but down from their previous estimate of $2,500/oz.