GOLD OUTLOOK 2021

GOLD OUTLOOK 2021 :-

Economic recovery and low interest rates set the tone

The COVID-19 pandemic raised uncertainty by compounding existing risks and creating new ones. But by the end of last year, investors were optimistic that the worst was over.

Looking ahead, we believe that investors will likely see the low interest rate environment as an opportunity to add risk assets in the hope that economic recovery is on the immediate horizon. That said, investors will likely also be navigating potential portfolio risks including:

  • ballooning budget deficits

  • inflationary pressures

  • market corrections amid already high equity valuations.

In this context, we believe gold investment will remain well supported while gold consumption should benefit from the nascent economic recovery, especially in emerging markets.

Gold gained from risk, rates and momentum

Gold was one of the best performing major assets of 2020 driven by a combination of: 

  • high risk 

  • low interest rates 

  • positive price momentum – especially during late spring and summer. 

Gold also had one of the lowest drawdowns during the year, thus helping investors limit losses and manage volatility risk in their portfolios.

The gold price is near or above record highs across key currencies.

Gold investment to react to rates and inflation

Global stocks performed particularly well during November and December, with the MSCI All World Index increasing by almost 20% over the period. However, rising COVID-19 cases and a reportedly more infectious new variant of the virus created a renewed sense of caution. Yet, neither this nor the highly volatile US political events during the first week of 2021 have deterred investors from maintaining or expanding their exposure to risk assets.

The Indian gold market appears to be on a stronger footing. Initial data from the Dhanteras festival in November suggest that while jewellery demand was still below average, it had substantially recovered from the lows seen in Q2 of last year. 

Central bank demand not going away

Drivers of gold performance

Gold’s behaviour can be explained by four broad sets of drivers:

  • Economic expansion: periods of growth are very supportive of jewellery, technology and long-term savings

  • Risk and uncertainty: market downturns often boost investment demand for gold as a safe haven

  • Opportunity cost: interest rates and relative currency strength influence investor attitudes towards gold

  • Momentum: capital flows, positioning and price trends can ignite or dampen gold's performance

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Source:- World Gold Council

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