Under the impact of the global epidemic, the resumption of (QE) by central banks and the US election, gold returned to the "king of risk aversion" in 2020, and the price of gold set a new all-time high. At the height of risk aversion, gold coins and bars around the world were once out of stock, and physical gold continued to fall short of demand.
But at the end of the year, as the economy entered the path of recovery and the positive news of novel coronavirus vaccine continued to come out, the golden light began to dim. Both sides hold different opinions on whether gold can continue to shine in 2021.
For most of 2020, gold had its best performance in history, with heavy central bank printing, a weak dollar and uncertainty in the general election fuelling safe-haven demand. The decline in real Treasury yields prompted gold prices to rise sharply in July and August, culminating in spot gold rising to a record high of $2075 an ounce.
Specifically, the trend of spot gold prices has gone through four stages this year:
The first stage-January 1, 2020-March 8: the epidemic broke out in some countries and began to spread around the world. In order to avoid risks, the price of gold gradually rose.
At this stage, the COVID-19 epidemic began to spread around the world from individual countries, and capital markets have taken the lead in responding. At that time, economists downgraded their forecasts for global economic growth across the board, as travel restrictions and blockades had affected tourism, supply chains and factory output in many countries.
The second stage-- March 9-March 19: the novel coronavirus epidemic broke out in Europe, the United States and other countries, and risky assets such as gold and US stocks fell sharply.
In view of the collapse of gold at this stage, institutional analysts believe that it is mainly due to the tight liquidity of the US dollar.
When there is sharp volatility in the market, gold is usually sold off along with the risk market, providing liquidity for investors and making up margin, so gold and gold stocks are also hit.
The third stage-March 20-August 6: the global epidemic continues to worsen, and gold as a safe haven asset soars and continues to rise.
After fending off a liquidity-based sell-off, the price of gold was snapped up as a safe haven, refreshing its all-time high in 2011 and breaking the important $2000 / oz mark in one fell swoop. The agency continues to be bullish at this stage.
The printing of money by major central banks around the world, including the Federal Reserve, is unprecedented at this stage, and the Fed's balance sheet has doubled in just a few months.
In addition to concerns about risky assets, there are also fears that the legal tender will depreciate and gold will become the only stable asset.
The fourth stage-August 7-so far: economic indicators show signs of recovery, positive news about the progress of novel coronavirus vaccine continues to come out, and the decline in political uncertainty in the United States after the election has put gold under pressure at this stage.
So far, spot gold prices have recovered more than 10 per cent from their all-time highs in August, while the advent of highly effective vaccines from Pfizer and Moderna have further eased risk aversion and posed a threat to gold prices.
On November 9th, the day Pfizer announced preliminary results that its vaccine was 90% effective, gold prices suffered their second-biggest one-day fall in seven years.
At the same time, the gold bearish camp of institutions is also growing. Michael Hsueh, a commodities and foreign exchange strategist at Deutsche Bank, is the latest to join the camp, warning that gold will still tumble 12 per cent in the short term.
Extreme panic-gold bars and coins were once out of stock
At the beginning of the third phase of the gold trend this year, when spot gold prices in London soared after bottoming out on March 19, due to extreme panic over the epidemic, the world was snapping up physical gold, and gold bars and coins were once out of stock.
At that time, although the spot gold price in London was only around $1580 an ounce, in fact, the price of paper gold was completely different from the actual price. In reality, the price of gold was already close to $1800, and there was a good chance that it could not be bought.
According to media reports, big gold traders had sold large quantities of gold coins and bars in panic before the White House approved a $2 trillion emergency response plan on March 25.
Paper gold and gold can be bought by ETF, but there is no (physical) gold on the market.
Canadian gold trading giant Kitco had previously reported that it had sold almost all the standard one-ounce gold coins. The Eagle Yang gold coins and buffalo gold coins issued by the Federal Mint of the United States have been out of stock. The most widely circulated gold coins in the world, such as Maple Leaf gold coins issued by Canada, British gold coins issued by Britain, kangaroo gold coins issued by Australia and Kruger gold coins issued by South Africa, are also out of stock.
Gold and Bitcoin-- the dispute between "New and Old risk aversion King"
Gold played an important role during the epidemic this year, but as a traditional safe haven, its shine is being overshadowed by the emerging asset Bitcoin. Mo Chase (JPMorgan) warned in December that gold would fall victim to the rise of Bitcoin in the mainstream investment community.
The price of Bitcoin, which was around $7000 at the beginning of the year, has risen more than 180 per cent to more than $20000, while gold, which was about $1530 at the start of the year, is now up about 20 per cent to about $1860.
Even with gold's lowest point of the year ($1451.55) on March 19th and its peak of $2074.71 on Aug. 6, gold's biggest gain for the year was only about 43%. Both in terms of price and increase, Bitcoin is much higher than gold.
"the adoption of Bitcoin by institutional investors has only just begun, while the acceptance of gold is very high." Nikolaos Panigirtzoglou, a quantitative strategist at mo, commented in a December report.
Mo Chase predicts that major changes will take place in the gold and cryptocurrency markets as digital currencies become more and more accepted as an asset class. Investors transferring even a small portion of their investments from the gold market to cryptocurrencies will cause serious trouble for the bulls in the precious metals market.
"if this medium-and long-term view turns out to be correct, then gold prices will suffer a structural countercurrent in the coming years." Mo root chase said.
In October and November, (bitcoin trust), a bitcoin trust owned by digital asset manager Grayscale, had inflows of nearly $2 billion, while gold ETF had outflows of more than $7 billion.
Prospect of Gold trend in 2021
As the uncertainty of the US election fades, some countries begin to be vaccinated against Pfizer, and investors' confidence in the economic recovery has rebounded, the golden future is not optimistic, and the bearish camp of institutions is growing, mainly for the following reasons:
1. The epidemic is expected to be brought under control. As the UK and the US begin to announce Pfizer vaccinations, the market expects more and more countries to be fully vaccinated against novel coronavirus, and the epidemic is expected to be brought under control next year, as risk aversion fades and gold prices will be suppressed.
2. The possibility of a large-scale economic stimulus package is declining. The two parties in the United States have struggled to reach a new round of economic stimulus agreement, which may further reduce the likelihood of a stimulus package as vaccination efforts advance. Even if the United States finally introduces stimulus measures, the market fears that the scale of the stimulus will be greatly reduced, which is not conducive to the rise of gold prices.
3. Funds should be transferred to risky assets. As the economy starts to recover, fund managers are likely to turn to risk and value assets, meaning the bull market in gold may come to an end.
4. Bitcoin may steal the limelight. Even if the dollar continues to weaken or inflation picks up, it could help gold continue to rise, but Bitcoin, a new safe-haven asset, could steal the halo of gold, which has already happened this year.
"We think it will be very difficult for gold to hit a new high again." Deutsche Bank, the latest to move from gold bulls to bears, said it had taken a strategically bearish view on gold and that gold's decline cycle "tends to last for years".
Macquarie (Macquarie Group Ltd.) also believes that the "cyclical bull market" in gold is over and that gold prices may have peaked.
Inflation and vaccines may bring variables to the price of gold
However, not all institutions are so pessimistic. For 2021, inflation will be the key to gold's outlook.
With the outbreak of the financial crisis in 2008, central banks began massive quantitative easing, raising fears of hyperinflation, with gold prices hitting an all-time high in 2011. As a result, some gold bulls believe that gold can continue to hit record highs in the face of inflation expectations next year.
Cooper (Suki Cooper), precious metals analyst at Standard Chartered Bank, said: "given expectations of loose monetary policy, gold price risk is still upside and global real interest rates are still low or negative." She believes that the increase in government debt will push up inflation expectations.
Also positive for gold is that although the price of gold plummeted as a result of Pfizer's first release of good news, the subsequent announcement of similar vaccine progress did not cause the same strong reaction, indicating that the gold market has digested the negative impact of the vaccine. After the announcement of the Moderna vaccine on November 16th, the price of gold was little changed.
In addition, it is too early to say whether the emergence of vaccines can contain the epidemic. Rhona O'Connell, director of market analysis at StoneX Group, a financial services company, said the vaccine does not represent a cure and that there is still a long way to go before getting out of trouble.
The bulls also believe that a weaker dollar is good for gold. The economic recovery is a long process, and central banks will continue to turn around in quantitative easing, which will further weaken the dollar and boost gold.
In its commodities outlook for 2021, BofA abandoned its previous target of gold rising to $3000 an ounce, but did not go short much. In its latest forecast, BofA expects the average price of gold to be around $2063 an ounce in the coming year.
