Commodities Check: Will gold rise above US$2,000 per ounce again?

This week’s column looks at how the gold price has been under pressure and indicate analysts’ views on the commodity’s trading outlook

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HARARE – The price of the precious metal, known as a safe haven in times of economic distress has given up roughly 8% year to date while displaying an inverse correlation to that of US treasury yields which have been rising this year.

During this period, we’ve seen equity markets gaining as the world forges ahead with vaccine rollouts, leading analysts to revise and issue positive prospects for world economic growth. Just recently, the International Monetary Fund (IMF) lifted its global growth forecast from a 5.5% forecast in January 2021 and now expects the world economy to grow by 6% in 2021.

China, the world’s second-largest economy behind the US, yesterday reported exponential growth in exports in March at 30.6% while imports grew by 38.1% from a year earlier, indicating growth in global trade activities.

Back to the US factor, yields have been rising on the prospect of reflation within the market, and expectant of rising interest rates in the future. Other assets like the US dollar, the stock markets, cryptocurrencies have proven to be attractive and thus pushing the price of gold lower.

In similar views, Wenyu Yao, senior commodities strategist at ING bank, explained in the recent gold price outlook: “As a non-interest bearing asset, gold has faced strong headwinds amid rising real yields, which has seen Comex and ETF investors trim their gold exposure. However, the lack of any agreement on inflation risks ahead keeps some investors on the sidelines as policymakers have been downplaying the risks here.”

Yao added: “Meanwhile, cryptocurrencies do appear to have stolen gold’s thunder, and it’s particularly true given cryptocurrencies’ possible wider acceptance from institutional investors…Further ahead, should inflation overshoot expectations, this may see risk-conscious investors return to gold.”

Gold price performance

The gold price reached a record high last year in August at $2,069.40 per ounce driven by weaknesses in the value of the US dollar as low-interest rates and government economic stimulus during the Covid-19 pandemic sent investors toward precious metals.

The precious metal has been in decline since early January 2021, dropping to a one-year low in March.  The commodity dropped below $1,800 per ounce to $1,780 per ounce at the end of November 2020, then rebounded to $1.954.40 per ounce on January 5, 2021. But the price has been under pressure since, dropping to a one-year low of $1,678 per ounce on March 8, and then rising to $1,743.90 per ounce before slipping back.

Even at monthly peak levels since January 2021, the yellow metal has remained shy of the $2,000 mark, as shown in the diagram below.

According to Metals Daily, gold is trading around the region of $1,740 an ounce as of Wednesday 14, but are we going to see the tide come back in for gold and breach the $2,000 mark?

Analyst views

The price forecast for gold shows a long-term downward trend, but short-term trading range.

Analysts at Citibank, a multinational financial services group based in New York have taken the view that the bull market cycle for gold has ended and have cut their average gold forecast for 2021 by 5% from $1,900 per ounce to $1,800 per ounce. They have set a three-month target of $1,800 per ounce and a 6-12month target of $1,700 per ounce, with their 2023 outlook unchanged at $1,550 per ounce.

ANZ, an Australian multinational banking and financial services company headquartered in Melbourne, Australia, gold price prediction puts the precious metal at an average of $1,850 per ounce at the end of June, rising to $2,000 per ounce by the end of September, but then falling back to $1,900 by the end of 2021 and $1,800 by mid-2022.

Source: ABN Amro, ANZ, Wallet Investor, AFA

Chances of gold moving upside are limited by rising yields and buoyant risky assets, but for the longer term, gold prices are expected to reach the $2,000 mark and set a new record.

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