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Monday, 4 January 2021

Its Wrap Up Time

 In the year 2020 the new positive was the word negative. Well for gold, it was all positive only. The yellow metal rose more than 22% since the start of the year, with the highest peak reached in August when it hit a new record high of $2,075 an ounce. Since then, gold has been consolidating below the $1,900 an ounce level.

In 2020, the economic and social uncertainties triggered by the coronavirus pandemic turned the spotlight on gold as a safe haven.

RSBL analysts argued that it was a sharp turn in global monetary policies that led to a low interest rate scenario and unprecedented liquidity, which began in mid-2019, gave a boost to gold price in all major currencies, making the yellow metal attractive for investors.

There were restrictions, lockdowns, weakening economies, declining dollar and overall a poor global growth which pushed investors towards gold. Though vaccination campaign did try to shake gold, but it couldn’t break it. Gold managed to recover the drops it faced as the vaccine ride began.

In the domestic market too, gold opened this year at Rs.39, 199 and steadily rose to Rs.56, 191. The price of the yellow metal reached an all-time high of Rs 56,191 per 10 grams at MCX and USD 2,075 an ounce in the international market in August.

RSBL Gold prices in India got an additional support from rupee depreciation against the dollar during the year as spot rupee was down by around three per cent year-to-date.

Further, the sharp decline in US equity indices in the first half of the year and the fall in real yields drove investors out of dollars which boosted buying in gold.

As we approach 2021, gold will remain in focus for investors. The main drivers cited include

Inflation-let’s assume that many people do get vaccinated and the vaccine is effective, then the economy should take off in a serious way in the second half of next year. The inflationary scenario would then become a real possibility, which would be positive for metals

Inflation will be a big concern to watch next year, which will encourage a flight to gold's safety trade.

Weaker U.S. dollar- The dollar could weaken on the back of more stimuli and that could help gold prices rise once again. Also, inflationary expectations due to the massive stimulus can be seen as a positive factor that could attract investment buying once again in 2021.

Economic concerns- With all this money printing we've gone through in 2020, next year will be the year we are all illusioned of the notion that we can print money without consequences. Gold can go through $2,100, and we could possibly challenge $3,000.  Rising debt-to-GDP ratio, quantitative easing, and the narrative in Modern Monetary Theory (MMT) as the reasons behind gold's move to new record highs next year.

Currency debasement fears- For gold, this means new all-time highs with more investors choosing to diversify into the precious metal in order to protect themselves from rising prices and currency debasement.

Debt- Vaccine is not going to cure the amount of global debt. Central Bank policies would continue to remain accommodative in spite of a successful vaccine.

Central Banks low interest rates and easy liquidity -_Next year will see central banks holding their foot down on the stimulus pedal with no chance of rates going higher which keep the bullish sentiments alive for the yellow metal.

Stimulus package. - Fed has been consistent, and we will see more fiscal support next year. This is the main reason why gold will make a strong run-up towards $2,300. Central banks across the globe, have pledged to keep rates low and easy liquidity to aid growth. Further, a stimulus package from the US government will add to the existing dollar liquidity in the system and may end up weakening the greenback and strengthening gold

Equities Another key trigger that will boost gold towards $2,100 next year will be stock market volatility. The U.S. share market is trading at historical extremes because investors are optimistic about the vaccine curing it all. In 2021, we are likely going to have equity market volatility throughout the year, and that should be supportive of precious metals prices.

Senate Runoff elections- the key driver that precious metals traders are eyeing is the Jan5 Senate runoff elections in Georgia. If Democrats win both the seats that are up for grabs, it would give them control of the Senate agenda and the fiscal policy is likely to stay loose which would heavily weigh on the green back and be bullish for the precious metals.

Overall, it is going to be a very strong year for gold. You are going to see unprecedented fiscal and monetary stimulus continue in the first half of the year confirmed the top gold dealer in India, RiddiSiddhi Bullions Limited.

These were the key drivers that will play a key role in influencing gold prices towards the higher end. 

Not to forget the very important Vaccines- A successful vaccine drive is still far from the near reality. We don’t know how many people it will reach out, how effective will it be, will it be able to combat the new mutation etc.  If the vaccine is not as effective or less than 50% of the population takes the vaccine, then the economy is going to struggle, and both the government and the Fed is not going to have any option but to increase stimulus which will further be constructive for gold.

So over all, the Bull Run continues for gold in 2021. Even if the vaccine works, there are concerns that will suppress the vaccine sentiments and will continue to push gold higher maybe to new life time highs.

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