Gold has not Closed its Bullish Cycle and Will Rise above $2,000

The upward cycle that has led gold to reach its all-time high last summer has not ended yet. So, it is likely that in 2021 we will see the price rise above $2,000 an ounce again. Rising inflation, low-interest rates, a weak dollar, and recovery in physical demand will be the main factors behind this rise.

According to a report by the Dutch bank ING, the appearance of a vaccine against the coronavirus in 2021 will not end the cycle of rising gold prices. Determining factors for next year is expected to be the growth of inflation expectations, the low yields on bonds, the dollar’s weakness, and the recovery of physical gold demand in some emerging countries.

Short-term evolution of the metal will depend on the stimulus packages and vaccine deployment

All of this will allow gold to continue with its upward cycle during 2021. According to Wenyu Yao, commodities and energy analyst at ING, gold has performed very well in 2020. Thanks to the investors’ interest in safe-haven assets amid the uncertainty caused by the Covid-19 pandemic, it surpassed its historical maximum price.

According to the report, the fall in bond yields, caused by low-interest rates, has made investing in gold more attractive. The real yields of some bonds, such as the US 10-year Treasury, have even entered negative territory.

On the other hand, the expectation of inflation growth due to the approval of numerous stimulus packages is also favorable to the rise in gold. However, the precious metal’s rise faced interruption by the news about the discovery of several vaccines to prevent the coronavirus.

According to ING, a correction has more to do with asset turnover than with the slowdown in gold growth.

The report indicates that the short-term evolution of the precious metal will depend on the magnitude and timing of the stimulus packages for the US economy. As well as, the progress of the vaccine’s deployment in the coming months.

Physical gold demand will recover again

In the medium term, ING analysts expect a slight rise in US Treasury bond yields for 2021. However, expectations of rising inflation support the Dutch corporation’s positive view of gold over the medium term. 

ING believes that, during 2020, the demand for ETFs has been one of the determining factors of the rise in gold. 

At the end of October this year, the total gold accumulated in ETFs rose to a record 3,899 tonnes. That is compared with 2,877 at the end of 2019. On the other hand, the demand for physical gold faced effects by the restrictive measures adopted to control the pandemic.

ING believes that the physical demand will recover again in 2021. Particularly, once consumers return to the market, mainly driven by demand related to festivities and the wedding season.

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