Analysts Expect Gold Prices to Continue to Increase in 2021

By Adriaan Brits Friday, January 1, 2021

Gold’s outstanding rally this year suggested the bullion was one of the favorite assets among investors as they were looking to manage the risks amid all the uncertainty as a result of the COVID-19 pandemic.

All-Time High Hit in August

After it declined to $1,477 per ounce during the market collapse in mid-March, the yellow metal quickly recovered and surged above $1,700 per ounce, as low-interest rates and unprecedented economic stimulus from global central banks led investors to safe-haven assets.

In August, gold touched the all-time high of $2,070 per ounce, marking a 35% rise since the start of 2020. Gold prices have been trading over 20% higher since the beginning of the year.

Amid periods of economic and political uncertainty, gold prices tend to move higher, and it was the same case this year as well. It’s common that investors start selling US dollars and buy gold during periods of monetary easing to avoid risks of inflation, resulting in an increase in gold prices.

Given that a fresh stimulus package is likely to be approved in the US Congress soon, it is likely to provide another positive catalyst for gold prices to continue heading higher.

Bullish Outlook for 2021

As for the future of gold, many factors impact its outlook, one of them being the COVID-19 pandemic. The world is fighting the second wave right now and the number of infections still keeps surging in many countries, leaving additional scars on already-battered economies.

If world leaders pass additional shots of fiscal and monetary stimulus, gold prices are expected to rise again.

Samuel Burman, an analyst at Capital Economics, notes that if “there will be a rapid recovery in economic activity due to the vaccine, there will probably be some further selling of gold-backed ETFs.”

Burman also expressed optimism regarding gold’s long-term outlook.

“While the positive developments in finding an effective vaccine against Covid-19 have boosted investor risk appetite, we still think that gold prices will remain high in the year ahead.”

“All told, we think that persistently low US real yields will support gold demand and offset much of the weakness associated with an increase in risk appetite. As a result, we expect that the gold price will stabilize around $1,900 per ounce until end-2021.”

Goldman Sachs and Citibank, some of the largest investment banking companies in the world, also remained positive about gold’s outlook for 2021.

Goldman Sachs set the price target for the bullion at $2,300 per ounce, while Citi predicted gold prices would surge to $2,200 per ounce in three months and to $2,400 per ounce during the next 6 to 12 months.

Additionally, JP Morgan analysts said that the US dollar is expected to decline further if economic recovery progresses, which could additionally boost gold prices. Investors should diversify their portfolios and invest in assets denominated in other currencies, they said in JP Morgan’s Outlook 2021 report.

In order to better predict gold trajectory, investors should keep an eye on US real rates, analysts said. A poor growth environment is what could represent the biggest risk to an optimistic commodities view, they added. Such an environment could emerge if the COVID-19 pandemic keeps weighing on the global economy and if we see renewed nationwide lockdowns across the world.

Similarly, Credit Suisse analysts said they believe any drawback in gold prices in the near future as a result of COVID-19 vaccine approvals represents a good entry point as the economy will remain weak, indicating that increased gold price environment could stay for the next few years.

“Risks to our view are a quicker-than-expected US economic recovery, a more hawkish US Fed, and lingering weakness in retail demand for gold,” the analysts added.

The bank also predicted gold prices to maintain its uptrend and average $2,100/oz next year, which is 13% higher than its current price. Credit Suisse expects gold to reach its peaks in the third quarter of 2021 at $2,200/oz in the third quarter of the next year, which is lower than its earlier estimate of $2,500/oz.

Summary

The future of gold prices depends largely on the COVID-19 pandemic developments next year. Still, a large number of analysts are bullish about gold’s outlook for 2021 as factors like fresh fiscal and monetary stimulus and a weaker US dollar could keep boosting prices of the yellow metal.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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