Gold Investors See Challenges Ahead After Glittery 2020

Gold concludes the best annual performance in years. What happens next depends on a handful of unpredictable dynamics, from the strength of the global economic recovery to the health of the US dollar.

The most actively traded gold futures contracts for delivery in February closed Wednesday at $ 1,893.40 per troy ounce, increasing the price of gold by more than 24% at the end of 2020, the best performance since 2010. It also outperforms the S&P 500, which increased by about 15% this year. The forward contracts for the first few months were concluded on Wednesday at USD 1,891.

After a massive rise at the beginning of the year, the price of gold fell from the record high of $2,069.50 per ounce reached in August, undermining signs of an improving global economy. Investors tend to buy metal when they are nervous about owning riskier assets such as shares or corporate bonds.

As a result, some investors expect more moderate growth in 2021 as the economic outlook improves. According to the World Gold Council, investors entered the gold market between 6 and 10 years ago. November and the 18th. In December more than USD 10 billion was withdrawn from gold-backed funds, reversing the record inflow at the beginning of the year.

Much will depend on the strength of the American recovery. The resurgence of the coronavirus pandemic and next month’s second round of elections in Georgia for Senate control could, according to traders, cause market volatility and support the price of gold in early 2021.

But many investors expect a strong recovery in 2021. The introduction of coronavirus vaccines will lead to accelerated recruitment and growth in gross domestic product from the second quarter, according to economists surveyed by the Wall Street Journal.

The main forecasting indicator for gold investors: the direction of the real yield or the inflation-adjusted bond yield. Since the actual yield on a 10-year government bond is minus 1 percent, the cost of owning gold, which does not contain iodine, is relatively low compared to government bonds, he said.

James O’Rourke,

Economist in the capital economy. He expects that real yields will continue to fall and that the price of gold will reach $1,900 by the end of 2021.

Some forecasters expect a weaker dollar to limit the fall in the price of gold.


David Gray/ Agence France-Presse/Getty Images

Real returns are not always a driving force behind the price of gold, but with such low interest rates and such high inflation expectations they are an important driver, he said.

In the meantime, a strong recovery could boost real earnings growth and damage the value of gold. Significant fluctuations in real US Treasury yields since the 2008 financial crisis have been linked to the reversal of the price of gold, according to data from

JPMorgan Chase.

Company & Co. found that for every 0.25 percentage point increase in the Treasury’s real 10-year yield, gold moved $80 per ounce in the opposite direction.

Following a recommendation from customers to buy gold for 2.5 years until July of this year,

Natasha Kaneva,

JPMorgan’s Head of Commodity Research now expects real yields to rise and the price of gold to fall to $1,650 per ounce by the end of 2021.

If real incomes are rising, why buy gold? She said.

However, some expect the weakening of the dollar to limit the decline in gold. Many Wall Street forecasters predict that increased government spending and a shift to riskier assets will push the US currency from its multi-annual low in 2020. Since gold is bought and sold against dollars, a weaker dollar makes gold cheaper for foreign investors.

The WSJ Dollar Index, which measures the greenback against 16 foreign currencies, lost more than 4% over the year, the largest annual decline since 2017.

The price of silver also reached a record high for the year. The most actively traded money futures are around $26 at the end of 2020. This is an increase of 48% compared to 2010.

As money is used to make products as diverse as electronic devices and solar panels, some analysts say demand could remain strong even as the global economy recovers.

The history of silver is very similar to that of gold. The difference is that a rebound in industrial demand will help push the price of silver higher than gold next year, O’Rourke said.

The price of gold is going crazy, creating an investment frenzy that questions the reputation of gold as a safe haven in times of economic uncertainty. WSJ explains. Illustration: Liz Ornitz/WSW (originally published on 14 August 2020).

2020 Market overview for year

Email Sebastian Pellejero at [email protected].

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