Gold prices 2020-2021 outlook

  • Gold prices to soar to US$1552 & US$1625 in 2020/21 respectively-RBC
  • Gold price reaches 4 month-high amid geopolitical tensions
  • Zim’s gold deliveries declined by over 20% in 2019
  • Side marketing affecting deliveries to Fidelity Printers

The Royal Bank of Canada (RBC) earlier today raised gold price projections for the next 2 years. The RBC expects the global price for gold to average $1552 per ounce in 2020 and $1625 in 2021. The price of gold closed the year at US$1523 per ounce having averaged US$1393/oz in 2019.

This comes amid geo-political tensions between the US and China and most recently between the US and Iran. Gold is considered to be a safe investment at the time of political and economic uncertainties.  At the same time yields on global bond markets are expected to be low in 2020, which spells higher prices for the metal.

The yellow metal today reached a four-month high as investors seek safety on news of US Airstrikes in Iraq which killed a high ranking Iranian Army general who had been under US sanctions since 2007. Iran has taken a stance and is threatening “severe retaliation.”

Spot gold hit its highest since Sept. 5 at $1,540.60, and was up 0.7% at $1,539.04 per ounce, as of 0508 GMT. U.S. gold futures gained 0.9% to $1,541.30 per ounce. For the week so far, spot gold gained about 2%, heading for a fourth consecutive weekly increase. Supporting the metal further, the dollar index was down for the second consecutive week against a basket of rivals, making gold cheaper for holders of other currencies.

The firm outlook price projections could benefit Zimbabwe which is a producer of the metal. Gold is Zimbabwe’s largest export earner and an anchor of the mining sector, a sector which contributes over 15% to Zimbabwe’s GDP. A recent recovery in prices rising on the back of heightened risk aversion following Brexit vote, US Trump election, US-China trade war, and the waning US-North Korea Cold War benefited Zimbabwe, consequently spurring volumes.

Gold was Zim’s largest forex earner in 2018 having raked in US$1,2 billion dollars having hit a record 33.2 tonnes in gold deliveries. The trend shifted in 2019 as gold generated US$420 million in the 10 months to October on the back of declining gold deliveries to Fidelity Printers. Over the same period, gold deliveries declined 23% to just over 23 tonnes compared to the same period in 2018 in which the State buyer had managed 30,03 tonnes.

Affecting the deliveries are forex retention issues on gold delivered to FPR, an arm of the central bank after the government reviewed downwards the threshold from 70/30 percent to 55/45 percent.

Anti-corruption watchdog Transparency International (Zimbabwe) in March of 2019, said the country was losing about $200 million worth of gold every year, especially in the small-scale mining sector where players were selling it on the more attractive black market. Small-scale miners account for more than 60 percent of gold deliveries to Fidelity Printers.

In addition, electricity shortages have also affected the production processes for the primary producers as they had to grapple with long hours of excessive load shedding. In the interim, ZESA has come up with an arrangement that allows exporting firms to pay for their power supplies in forex so as to guarantee supply.

The government had set a  40-tonne target for 2019,  as a precursor to the 2023 milestone in which the Mines Ministry is targeting annual gold deliveries to top 100 tonnes per year thus feeding into the US$12 billion mineral exports target. As the year closed, the target proved very much elusive.

EQUITY AXIS NEWS

 

Eben Mabunda

An Investment Analyst and Business Anchor for Equity Axis. Eben is passionate about the innovative digital space on the continent,  tourism trends, and real estate developments in Zimbabwe. He also has a comprehensive understanding of the operations of listed companies on the Zimbabwe Stock Exchange- across all sectors. Eben is an award winner of "The Vice-chancellor's Inno-preneur Award," an accolade in innovation and business entrepreneurship from the Vice-chancellor of the University of Johannesburg.

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