Gold will continue to enjoy safe-haven status in 2021?

Gold will continue to enjoy safe-haven status and sustain an upward trend in near future due to challenging environment across the globe in the wake of the Covid-19 pandemic, experts say.

The commodity analysts believe that any development and issues related to transportation of the Covid-19 vaccine, performance of global economy as well as US Treasury yields will massively influence the yellow metal price in 2021 and 2022.

“The yellow metal prices will trade in the range of $100 an ounce at the current price level to trade between $1,800 to $1,920 in 2021,” say economists.

With the rollout of the Covid-19 vaccine worldwide, analysts believe that this will bring confidence into the global economy, hence, central banks will lift interest rates and that could put pressure on the price of the commodity.

Gold price closed at $1,814 an ounce on Friday. The yellow metal is down by $101 an ounce, or 5.3 per cent, in the last 30 days and $256 an ounce or 12.4 per cent in the last six months. It was up by $249 an ounce, or 16 per cent, during the last year.

“Gold prices will likely remain close to their current levels in 2021. On the one hand, the global economy is expected to rebound robustly as the impact of the pandemic and subsequent lockdown measures fades. Positive news on the Covid-19 vaccine front in recent weeks should be further raising economic prospects for second half of 2021 and will likely continue to support investors’ appetite for risk ahead, boding poorly for safe-haven demand and gold prices,” said Steven Burke, economist at Focus Economics.

He said any logistical challenges to distribution of the Covid-19 vaccine to the masses and emergence of second strain of the virus could push safe-haven demand and gold prices higher.

A consensus forecast by Focus Economics analysts projected gold prices to average $1,889 per troy ounce in fourth quarter of 2021 and $1,823 per troy ounce in fourth quarter of 2022. The troy ounce is the equivalent of 31.10 grammes, whereas the ounce is the equivalent of 28.349 grammes.

“Markets have already begun pricing in the rollout of the Covid-19 vaccines to the most vulnerable from late December and around mid-2021 for the masses. Gold prices would likely fall if the vaccine is rolled out faster than currently anticipated and concerns surrounding its transportation and distribution do not materialise,” Burke said in the latest report on gold prices.

He said any change about the impact likely to be stronger on the upside if a vaccine is not readily available by at least mid-2021. However, an array of downside risks to the global economy will still continue to support gold prices over the next couple of years

Maurice Gravier, chief investment officer, Emirates NBD Group, sees yellow metal’s fair value at $1,920 at the end of 2020.

“We think gold should be worth a bit higher under our scenario. We may see blip in inflation expectation and interest rates during the year. If we see real interest rates rising, it is going to be bad for the gold. We are overweight on gold because it is a very nice asset to have in a diversified portfolio, not a standalone bet,” Maurice told Khaleej Times in an interview on Sunday.

Maurice sees a rally in risk assets in three to six months with interest rates a bit higher because of because of trust economic in recovery. “It could be an opportunity to take a dip in developed markets stocks and buy gold on lower rates,” he added.

Emirates NBD Research said in a note on January 11, 2021 that the near-term outlook for gold will be linked to how strongly US Treasury yields continue to rise, barring any political surprise that could see a flight to safety.

It expects yields to move upward over the course of the year in line with improvements in the economy, both in the US and elsewhere. That will weigh on gold and other precious metals, taking them lower from current levels.

— waheedabbas@khaleejtimes.com