2021 outlook: Will gold prices go up again amid economic recovery, vaccine rollout?

Analyst warns that uncertainties lie ahead for the precious metal

  
Gold grain is seen before being melted into 1kg gold bars during a refining process at AGR (African Gold Refinery) in Entebbe, Uganda, October 4, 2018. Image used for illustrative purpose.

Gold grain is seen before being melted into 1kg gold bars during a refining process at AGR (African Gold Refinery) in Entebbe, Uganda, October 4, 2018. Image used for illustrative purpose.

REUTERS/Baz Ratner

Gold may have undergone a correction over the past several weeks, but it is still poised to post some gains next year, with prices likely to average $2,000 an ounce by the end of 2021, according to experts.

The precious metal has retreated after hitting an all-time high in August, with prices hovering around $1,850 an ounce this month, as news about the vaccine rollout lifted investor sentiment.

“We still expect prices to rise in 2021 on lower US real yields and a weaker dollar,” said Georgette Boele, senior FX and precious metals strategist at ABN Amro. However, Boele said that “some cracks are appearing.”

“The caveat is that long gold is still a crowded trade, the technical picture is deteriorating, and normal relationships may not work as they usually do. Our year-end 2021 forecast stands at $2,000 per ounce,” Boele said in her latest note.

2020 performance

The bullion advanced higher at the start of the year until the coronavirus pandemic broke out. Prices then fell substantially before managing a turnaround, rising by 36 percent between March and August this year.

The dynamic has changed since then, Boele noted. For one, gold became a crowded trade and not many new investors came in to bet on the precious metal. Gold then struggled and fell below $2,000 an ounce.

Despite its recent performance, Boele said the outlook for the yellow metal is still positive amid low interest rates and limited rise in US treasury yields to support the American economy.

In the latest gold survey by Kitco, an online retailer of precious metals, the majority of respondents in Wall Street (79 percent) and Main Street (75 percent) are betting on the bullion to go up this week.

Ole Hansen, head of commodity strategy at Saxo Bank, said the rally made by the metals sector this year has been “the sharpest” in ten years.

“The sector..  looks set to receive an additional boost next year once the COVID-19 cloud lifts,” Hansen noted.

Concerns

Some of the negative factors to watch out for next year include investor positioning, technical picture and economic outlook.

Boele noted that gold remains a crowded trade, with total ETF positions still 28 percent higher than at the start of the year, while investors aren’t totally confident in gold. The technical picture for the yellow metal has also been falling, with prices holding above the 200-day moving average.

If the economy is also going to recover next year, interest rates could go up, providing support for the yellow metal.

“If we take all together, we expect the gold prices to rise again in 2021, but there are more uncertainties to our base scenario,” Boele said.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

Cleofe.maceda@refinitiv.com

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2020


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