Gold investors see challenges after glitter 2020

Gold gave its best annual performance over the years. From the strength of the global economic recovery to the strengthening of the health of the US dollar, a handful of unpredictable dynamics come next.

The most actively traded gold futures for February delivery ended the Thursday session at $ 1,895.1 a troy ounce, completing more than 24% year over year since 2010. It also outperforms the S&P 500, which gained 16% in 2020. The futures closed at $ 1,893.1 on Thursday.

Since the start of the first year of the year, gold prices have retreated to a record $ 2,069.50 an ounce in August, dragged by signs of an improvement in the global economy. Fearful of holding risky assets like stocks or corporate bonds, investors want to buy metal.

Some investors expect more moderate gains in 2021 as the economic outlook improves. According to World Gold Council data, from November 6 to December 18, investors pulled more than $ 10 billion from gold-backed exchange-traded funds, a notable reversal from the previous year’s record flow.

Much will depend on the strength of US recovery. Traders said a resurgence in the coronavirus epidemic and a runoff election in Georgia to establish control of the Senate in early 2021 next month could indicate market instability.

According to a survey of economists by the Wall Street Journal, many investors expect a strong recovery in 2021. The rollout of the coronovirus vaccine is expected to pick up in the second quarter and accelerate GDP-growth.

Important for investors’ gold outlook: known as real yields or returns on bonds when adjusting for inflation. Capital Economics economist James O’Rourke said it costs to keep gold at minus 1% on a Treasury note sitting around minus 1% with the actual yield at the benchmark. They expect real yields to fall further and gold prices to finish $ 1,900 per ounce by 2021.

Some forecasters expected a weaker dollar to limit the decline in the value of gold.


Gray Gray / Agnes France-Press / Getty Images

“Real yields are not always the drivers of the gold price, but with expectations of such low interest rates and high inflation, they are the primary drivers,” he said.

Meanwhile, a strong recovery can climb into real yields and hurt the value of gold. Since the 2008 financial crisis, significant increases in US Treasury yields have been accompanied by a reversal in gold prices, according to JPMorgan Chase & Co. data, for every 0.25-percent increase in real 10-year Treasury yields. Found, gold moved in the opposite direction to $ 80 per ounce.

After recommending customers to buy gold for 2 recomm years until last July, Natasha Kaneva, head of commodities research at JP Morgan, now expects gold prices to climb and fall to $ 1,650 an ounce by the end of 2021 .

“If real yields are increasing, why would you buy gold?” he said.

Still some expect a weaker dollar to limit gold’s decline. Many Wall Street forecasters have speculated that increased government spending and a shift toward riskier assets will drag on the US currency, which touched multiyear lovers in 2020. As gold is bought and sold with the dollar, a weaker dollar makes gold cheaper for foreign investors.

The WSJ Dollar Index, which measures the dollar against 16 foreign currencies, lost more than 5% during 2020, its biggest decline since 2017.

Silver prices also fell by one year. Most actively traded silver futures contracts ended Thursday’s session at $ 26.412. This marks a 47% gain for the year – the best performance of silver since 2010.

Because silver is used to diversify products in the form of electronics and solar panels, some analysts said demand could grow even as the global economy rebounds.

“The story is very similar to gold with silver. What’s different is that with the improvement in industrial demand, the price of silver will increase slightly more than gold next year.

The price of gold is falling drastically, leading to an investment frenzy, calling the metal’s reputation as a safe haven in times of economic uncertainty. The WSJ explains. Illustration: Liz Ornitz / WSJ (originally published August 14, 2020)

2020 Year-End Markets Review

Write Sebastian Pelzero at [email protected]

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