GOLD OUTLOOK 2021

GOLD OUTLOOK 2021

The precious metals market has seen a volatile start to 2021 as gold is down about 5% from its highs at the start of January. The yellow metal has struggled to find consistent bullish momentum as it tests resistance around its 200-day moving average. However, it is expected that gold and silver prices will continue to move higher in what they see as the start of the seventh commodity bull market in 225 years.

A commodity bull market is part and parcel of a new secular inflationary regime, a development few investors alive recall during their professional careers, as the last one ended about forty years ago. This theme probably will rapidly come to dominate investors ’attention in 2021, and could last for a decade or more. The key driver is the enduring response to the pandemic, which only accelerated trends in inequality that had been building since the 1980s and the following 3 decades of globalisation.

From here on out, we will see a real macro paradigm shift as the policy focus drifts away from the traditional focus on ensuring financial stability to one that demands social stability above all else.

Looking specifically at the precious metals market, it is expected that gold prices will continue to be well supported by rising inflation pressures, coupled with a weaker U.S. dollar. Despite gold's lacklustre performance recently, there is a constructive view on the sector with rising yields being primarily the result of a gold-supportive rise in inflation expectations; this will leave real yields, a key driver for gold, well into negative territory.

Together with accommodative central bank policies and renewed dollar weakness, the path of least resistance remains to the upside.
It is not expected that the U.S. dollar or bond yields will provide but of a headwind for gold and commodities. The growing government debt is creating an almost existential crisis for the U.S. dollar. The rise in gold, bitcoin/crypto assets, hard assets of any kind and the sudden increase in monetary velocity caused by an exodus from USD-linked former risk-free assets like T-bills and treasuries could theoretically even trigger an outright USD crisis. The U.S. dollar would not find much support from rising bond yields, because at some point, the Federal Reserve will have to step to keep monetary policy accommodative. The level at which higher rates become a problem has dropped sharply just as it has for every cycle since the 1980s.

Whether the level that gets markets into trouble is 1.25% or above 1.50% in the U.S. 10-year benchmark, trouble lurks…

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