Daily Market Recap - Gold can reach 1,995 per ounce before the end of the year

After a record-breaking year, gold should appreciate in the medium to long term, according to CPM's Gold Yearbook. The pandemic has changed the world, exacerbating some existing problems that should benefit gold.

“While the pandemic will eventually pass, it has changed the world. It has exacerbated some of the factors that support gold prices,” CPM Group said.

The main drivers that will support gold as the global economy reopens are sovereign and private sector debt, deficits, and ultra-accommodative monetary policies. Governments around the world will find it difficult to reverse fiscal policies introduced in response to the pandemic.

“This scenario positions gold well for further gains in the medium to long term,” the yearbook said. “The pandemic has compounded these problems and will make it more difficult to resolve some of them, which will help maintain investor interest in the metal. ”

At the Prospectors & Developers Association of Canada (PDAC) Virtual 2021 Conference, CPM Group Vice President of Research Rohit Savant said gold could climb as high as $1,995 per ounce this year, which would represent a 5% increase from last year's closing price.

This outlook comes against the backdrop of gold struggling to move forward after a period of consolidation. At the time of writing, spot gold is trading at $1,712, down 1.10 percent on the day. Gold has been under pressure recently due to a surge in 10-year US Treasury yields and a stronger U.S. dollar.

That said, low nominal rates and negative inflation-adjusted rates will maintain long-term and fundamentally positive investor interest in gold, while any signs of upward movements in interest rates will serve as a drag on prices due to short-term investors using valuation models based on U.S. Treasuries, as was the case during the first quarter of 2021.

It is important to keep in mind that parts of the world could be fighting the pandemic until 2022, and even 2023.

“As stimulus initiatives via stimulus continue, monetary authorities will still need to do more to offset the negative spillover of such fiscal stimulus on bond yields, which should support the gold price,” notes CPM Group. “While the FED has no plans to control rate hikes at this time, if rates continue to rise sharply, it would not be surprising to see the FED become more aggressive in order to prevent longer-term rates from rising too much, too fast. ”

CPM Group expects a weaker U.S. dollar in 2021 but does not anticipate a total collapse of the currency. “The value of the dollar, however, depends on the value of other currencies. Compared to most major currencies and competing economies, the U.S. economy and the dollar remain in a better position, which should provide support in the face of this decline in the value of the greenback. ”

The stock market should continue to climb despite high valuations. The return on investment in these markets may not be as attractive as it has been over the past two years but the combination of expensive equities and low bond yields make gold an attractive diversification asset.

(Chart Source: Tradingview 29.03.2021)

In addition, U.S.-China relations are a key factor to watch closely this year. Regardless of how they evolve, their current deterioration will do a lot of damage over time, in turn boosting the appeal of the safe-haven gold.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.