Gold Price Outlook for the remainder of 2021
With gold hovering around the $1900 mark, many investors wonder what the rest of the year will bring for the yellow metal. Below are some thoughts on the Gold Price outlook 2021.
As the COVID-19 pandemic continues to accelerate in many parts of the world, investors are driven by fear, which continues to push gold to new heights. With stimulus packages introduced by president Biden and the global rollout of vaccines, many investors wonder if current gains are sustainable moving forward.
What Drives Gold’s Valuation?
Gold’s performance is driven by various sectors of the supply and demand dynamic. These are, in turn, affected by four key areas of economic influence:
- Economic Expansion
- Risk and Uncertainty
- Cost and Momentum
When there is an economic expansion, you have periods of growth that support both the jewelry and technology sectors. As both of these are net consumers of gold, this creates a bullish situation for gold.
When there is risk and uncertainty in financial markets, downturns will often attract investors to gold as a safe haven to offset potential losses. This is also a bullish situation for gold.
The saying “strike when the metal is hot” relates directly to the concept of opportunity cost in markets such as these, where interest rates are very low and relative currency strength will often define how many people will be attracted to the price of gold. This is a complex relationship that can have many geopolitical sub-influencers weighing on it
Gold Activity in 2020
In 2020 gold was one of the best-performing assets on the planet; this was driven by a combination of high-risk low-interest rates and positive price momentum, especially during the late summer and into early fall. In August 2020, gold reached a historic price high of $2067 US per oz.
After the August high, gold subsequently retreated but could still hold onto a level above $1850 US and closed the year out at $1887.00 per ounce.
Last year’s investor demand for physical and physically linked gold products supports the evidence that at that time, gold was being used as a strategic asset rather than as a tactical play in investing.
The surge in physical demand last year was influenced from the COVID-19 pandemic, which caused people’s fear levels to surge to new heights.
The Rest of 2021
The majority of economists expect economic growth in 2021 to outperform that of 2020.
However, global economic growth looks to remain very weak, despite some positive signals coming from some G-7 economies. This weakness remains a bullish indicator for the price of gold which has remained relatively steady in these troubled times.
One negative factor weighing on the outlook for gold is the surge of COVID cases in India and its effect on the Indian domestic retail market. In the long run, this factor is likely to be a temporary setback.
Central Bank Demand is not Abating
Central banks, except for Turkey, have continued to purchase gold on the open market. Turkey, which is facing a currency crisis of its own, has been a net seller of gold so far this year. Any gold they have sent to the market has been quickly snapped up by other central banks. Central banks are eager to continue to add gold to their reserves as the low-interest-rate environment makes gold attractive as a preserver of wealth.
The Future is Golden
Market sentiment seems to indicate that gold will still see gains this year but not as strong as 2020. As long as the low-interest-rate environment remains, this will further add to bullish consumer sentiment for the rest of the year.
End-of-year price targets will be affected strongly by COVID vaccination rates and how the spread of COVID variants delays economic recoveries in local regions globally. With solid central bank demand absorbing some of the global slow down in retail markets, gold seems to be a classic buy-the-dip market. Both technical and fundamental indicators are pointing to a higher close by the end of the year.
Is a run to the $2000 per ounce level in the cards? It certainly can not be discounted, but it might not be as easy as last year’s run. There are significant resistance levels above at the $1900 per ounce and $1976 per ounce areas. A year-end close between these areas would be a good sign that future gains are on the horizon for 2022.
All in all, prospects for future gold performance are looking to the upside more than the downside. There is more risk in establishing selling positions than looking for buying entry points on market weakness. One could say that this precious metal’s future is looking golden.
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