The gold market is struggling to regain a footing above $1,850 an ounce, but one bank says that the precious metal still has plenty of fuel to move higher in 2021.
In a 2021 outlook report published earlier this week, Wenyu Yao, senior commodities strategist at ING, said that although news of a vaccine has prompted some a short-term rotation out of gold heading into year-end, the precious metals fundamental outlook remains strong next year.
In its latest forecasts, the bank sees gold prices average the year around $1,965 an ounce. It sees gold prices pushing above $2,000 by the third quarter of next year.
"Much of the short-term view for gold will depend on the timing and scale of a US stimulus package, along with how the roll-out of vaccines progress in the coming months. Although a vaccine is on the horizon, the reality is that we see a double-dip in some economies, given the latest waves of lockdowns," she said.
According to Yao, inflation and interest rates are expected to have the biggest impact on gold prices next year. Quoting interest rate analysts at ING, Yao said that they see nominal yields falling as low as 50 basis points, a drop of nearly half from current levels.
Yao added that even if nominal rates do start to recover later in the year, real interest rates will remain low.
"Inflation expectations are likely to outstrip the rise in nominal yields, therefore we should see further weakness in real yields, which supports our constructive view on gold in the medium term," she said.
While investment demand, particularly in gold-backed exchange-traded products, remains the biggest factor behind gold prices, Yao said that she sees a return of pent up physical demand as the world starts to recover from the COVID-19 pandemic.
"Pent-up demand is likely to push up physical demand firmly in 2021, as consumers return to the market, especially for festival and marriage demand. While higher prices might deter some consumers, government stimulus and an increase in disposable income are likely to provide enough liquidity for consumers to increase gold purchases," she said.
Reference: Kitco
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