The gold price rally took the yellow metal above the $ 2,000 mark to an unprecedented high this year. According to the Commerzbank analysts, the best is yet to come!
After the yellow metal consolidated significantly from the all-time high it reached in August, the gold market recently struggled to generate new purchases. Commerzbank, however, pointed out that gold has already come a long way since the beginning of the year. Even at USD 1,850 an ounce, there has been an increase of over 21% since the beginning of 2020. From the lows in March, when the markets as a whole went down due to the first corona lockdown, the gold price had already moved away by 23%, it said.
Although the prospect of COVID19 vaccines has dampened investor enthusiasm for gold, experts believe the effects of the pandemic will be felt for most of the coming year.
That is why the Commerzbankers do not expect that there will be a change in the ultra-loose monetary policy. Instead, governments and central banks would continue to cushion the impact of the anti-corona measures on society and the economy. Should the necessary economic stimulus programs not be decided in time due to resistance in the legislative process, the pressure on the central banks to step into the breach with further measures will increase.
Since it can be assumed that governments and central banks will pump further liquidity into the financial markets, the analysts expect that it is only a matter of time before the gold price rises above the all-time high from August. For the coming year as a whole, Commerzbank expects an average gold price of around USD 2,000 per ounce. For the fourth quarter, a high of USD 2,300 is to be expected, it said. In 2022, the experts say, an ounce of gold should cost an average of about $ 2,200 an ounce!
Even if, as is expected, the corona pandemic can largely be brought under control in the second half of 2021, the dramatic increase in public debt and the inflated balance sheet of the central banks would remain for a long time, according to the analysts. The US Federal Reserve has no plans to change its monetary policy until inflation is slightly above 2% for an extended period and full employment is reached. Both criteria have only rarely been met in the past 20 years.
The low interest rates are not a purely North American problem, according to Commerzbank. The ECB will also leave interest rates in negative territory for the foreseeable future. As the experts believe that monetary policy will be the decisive factor for the gold market, investment demand for gold must be monitored particularly closely in 2021.
The analysts pointed out that for the first time in 2020, investment demand outperformed jewelry demand as the most important sector for the gold market. That was not even the case in the crisis year 2009! Commerzbank assumes, however, that as the global economy recovers, demand for jewelry will also recover. In view of the strong economic recovery in China, a higher demand for jewelry is expected again. In India, however, the recovery in demand is still at a very early stage.
Demand from the official sector – on the part of the central banks – will also be an important pillar of the gold price. Commerzbank expects the central banks to continue to be net buyers in 2021, even if this trend has weakened in recent months.
The case for gold has not changed for the central banks. Bonds denominated in US dollars would hardly achieve positive returns; in fact, the real yield on these bonds was almost entirely negative. The gold price development in this challenging year, however, has shown that the yellow metal offers great advantages as an integral part of currency reserves, according to the analysts.
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