Capital Economics announced its expectation for the Gold price for the next year. In the statement, it was emphasized that a price level of 1900 dollars was projected for the ounce price of Gold and that the sales risk continued.
Gold has increased by about 20% this year. It’s a great performance in terms of performance, but most of these price moves occurred in the spring and summer. Since September, gold has been consolidating at $ 1,850 / ounce.
At the time of writing, February Comex gold futures were trading at $ 1,831.70, down 0.65% on the day.
Capital Economics describes its outlook as positive but highlights some key downside risks, including a faster-than-expected economic recovery. Samuel Burman, deputy commodity economist at Capital Economics, emphasizes:
“As the US real interest rates remain low, we expect the price of gold to be traded at around US $ 1,900 per ounce by 2021. However, we acknowledge some significant downside risks in our forecast. US nominal returns may increase and investors can focus on them. The sale of safe harbor assets may be due to a faster than expected recovery in US economic activity.
Gold peaked in August when prices reached a new record high of $ 2,075 per ounce. In the first half of the year, the precious metal was supported by low nominal and real interest rates, and the safe haven accelerated investment demand. But since then, investors have started to slowly turn their money into more risky assets. The move accelerated in November on all positive vaccination news. Burman uses the following statement at this point:
“Our current gold price forecast is based on the US real interest rates next year. While the Fed’s adoption of average inflation targeting keeps nominal returns constant, high oil prices may increase inflation expectations. This could push the price of gold above $ 1,900, as it did earlier in the year. We think that the main risks in our 2021 gold price forecast are downside. ”
There are two main downside risks in Capital Economics’ $ 1,900 gold forecast. The first is the possibility that US real interest rates will rise when nominal returns are collected due to a faster-than-expected economic recovery. Capital Economics currently predicts world GDP growth of 6.8% in 2021.
“The market currently expects US interest rates to remain close to zero, at least until 2023,” Burman said. But if inflation consistently exceeds the 2% target and the unemployment rate drops rapidly, it can come forward ”.
The second negative risk is the decline in investors’ demand for gold in the new year. “Investors can increase the sale of safe harbor assets such as gold-backed ETFs,” says Burman.
The higher the sensitivity to risk, the lower the investor demand. According to the World Gold Council (WGC), the second largest breakout in gold-backed ETFs was recorded in November alone.
However, even in light of these risks, Burman offers some consolation by saying that any fall in gold prices should be limited.
“The Fed will almost certainly step in to prevent nominal returns from rising too much. In addition, we think that the investment demand will remain high compared to the old standards for a while. After all, yields are still very low, and there are also uncertainties surrounding both the global economic recovery and distribution of covid-19 vaccines. “