Gold investors see challenges ahead of Glittery 2020

After rising earlier in the year, gold prices retreated from a record $ 2,069.50 per ounce reached in August, dragging on signs of improvement in the world economy. Investors tend to buy the metal if they are nervous about owning riskier assets such as stocks or corporate bonds.

This will allow some investors more moderate profits in 2021 as the economic outlook improves. From November 6 to December 18, investors were pulling more than $ 10 billion from gold-backed exchange-traded funds, according to data from the World Gold Council, a significant reversal of the record flow earlier in the year.

Much will depend on the strength of the American recovery. A survey into the coronavirus pandemic and a follow-up election next month in Georgia to determine Senate control could cause market volatility in early 2021, traders say, supporting gold prices.

But many investors expect a strong recovery in 2021. According to economists surveyed by The Wall Street Journal, the introduction of coronavirus vaccines is expected to accelerate the leasing and growth of gross domestic product in the second quarter.

Important for the gold prospects of investors: the direction of real returns, or the returns on bonds if inflation is adjusted. The real return on the standard ten-year treasury note is about 1%, but the cost of owning gold – which pays no returns – instead of government bonds is relatively low, said James O’Rourke, an economist at Capital Economics. said. He expects real yields to fall further and that gold prices will end at $ 1,900 per ounce in 2021.

“Real returns are not always the driver of the gold price, but with such low interest rates and higher inflation expectations, it is the main driver,” he said.

A strong recovery, meanwhile, could spur an increase in real returns and hurt the value of gold. Significant movements in real US treasury yields have been combined with reverse movements in gold prices since the 2008 financial crisis, according to data from JPMorgan Chase & Co. moved $ 80 per ounce in the opposite direction.

After Natasha Kaneva, head of commodity research at JPMorgan, recommended that he buy 2½ gold for the past July, he now expected real yields to rise and gold prices to fall to $ 1,650 per ounce by the end of 2021.

“If real returns rise, why would you buy gold?” she said.

Some still expect a weakening dollar to curb gold decline. Many Wall Street forecasters predict that increased government spending and a shift toward more risky assets will affect the U.S. currency, which in 2020 reached its low point of several years. As gold is bought and sold with dollars, 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 annual decline since 2017.

Silver prices also achieved a record year. Silver futures with the most active trading closed Thursday’s session at $ 26,412. This is a 47% gain for the year – silver’s best performance since 2010.

Because silver is used to make products as diverse as electronics and solar panels, some analysts have said that demand can still remain, even if the world economy recovers.

‘The story with silver is largely similar to gold. What is different is that a recovery in industrial demand will help the price of silver increase a little more next year compared to gold, ‘O’Rourke said.

Write to Sebastian Pellejero by [email protected]