Will gold prices have another good year in 2021? Key things to watch out for


Though gold prices have bounced off recent lows, they are significantly off August highs. In India, gold in futures market trade about 50,200 per 10 gram, recovering from below 48,000 levels hit last month. For the next year, Axis Securities has a neutral stance on gold.

Despite correcting significantly from its August highs of 56,200, gold prices on track to finish this year with strong gains of about 25% in India, buoyed by global rally amid unprecedented monetary and fiscal stimulus announced this year to combat the impact of coronavirus. A sliding dollar index has also helped support gold at lower levels.

“Gold suddenly lost its momentum due to ‘Risk on’ trade in the global market amid positive development on vaccine front. Equity markets hit a fresh high in the month of November on account of relief from an uncertainty of the US elections and vaccination news. Overall investor’s sentiments have improved in the last few days. Now, investors are betting higher on riskier assets like equity, these improved sentiments were further stoked by the optimism on the vaccine development after the upbeat results shown by two US drug manufacturers,” said Axis Securities in a note.

“All these developments are keeping the gold prices under pressure. The improvement in global economy and likelihood of more predictable trade policies will further keep the gold prices range bound. However, lower interest rates and dovish policy stance could continue to attract investments in gold. We continue our Neutral stance on gold.”

The US Fed earlier this week has maintained its accommodative stance while American policymakers have also increased efforts to finalize a fiscal stimulus deal.

But weighing on price is ETF outflows which shows weaker investor interest, says Kotak Securities.

For the near term, gold remains supported by stimulus expectations but “we do not expect a sustained rise as Fed’s stance was largely anticipated and US leaders are still to finalize a stimulus deal and ETF investors are still not buying,” says Kotak Securities in a note.

Meanwhile, Goldman Sachs said that gold and bitcoin can coexist amid the recent rally in the largest digital currency may be pinching some demand from the oldest of havens, the precious metal’s standing will endure.

“Gold’s recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice,” the bank said in a note. “While there is some substitution occurring, we do not see Bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort.”

Bitcoin has seen a blistering rally this month, exceeding $23,000 per token. (With Agency Inputs)

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