2. Points To Be Covered Today:
• Pandemic 2020 Is Gone! Will 2021 Be Better For Gold?
• The Gold Market In 2020 And Beyond
• Phases In The Gold Market In 2020
• All Bodes Well For Gold In 2021
• Gold News & Analysis
• Gold Price & Chart
3. Pandemic 2020 Is Gone! Will 2021 Be
Better For Gold
• The disastrous year of 2020, which brought about the COVID-19 pandemic, the Great
Lockdown, and the economic crisis, is over! Now, the question is what will 2021 be like –
both for the U.S. economy and the gold market.
• To provide an answer, below I analyze the most important economic trends for the next
year and their implications for the yellow metal.
• Society gains herd immunity by vaccination and the health crisis is overcome.
• With herd immunity approaching, the social fabric returns to normality, and the economy
recovers.
• The vaccine rollout increases the risk appetite, reducing the safe-haven demand for both
gold and the greenback.
• The return to normality and realization of the pent-up demand (comeback of spending that
was put on hold during the U.S. epidemic ) accelerates the CPI inflation rate .
• The Fed stays accommodative, but the recovery in the GDP growth and the labor market
makes the U.S. monetary policy less aggressively dovish than in 2020.
4. Pandemic 2020 Is Gone! Will 2021 Be
Better For Gold - I
• However, the Fed continues to use all of its tools to support the economy in 2021
and, in particular, it does not hike the federal funds rate , even if inflation rises.
• As a result, the real interest rates stay at ultra-low levels. However, the potential
for further declines, similar in scale to 2020, is limited, unless inflation jumps.
• The American fiscal policy also remains easy, although relative to 2020,
government spending declines, while the budget deficit narrows as a share of the
GDP.
• However, the public debt burdens continue to rise. Although the ratio of debt to
GDP decreased in Q3 2020 amid the rebound in the GDP, it’s likely to increase
further in the future, especially if Congress approves the new fiscal stimulus.
• Given the dovish Fed conducting a zero-interest rate policy, increasing debt
burden, and strengthened risk appetite amid the vaccine rollout, the U.S. dollar
weakens further. The American currency has already lost more than 11 percent
against a broad basket of other currencies since its March peak.
5. Pandemic 2020 Is Gone! Will 2021 Be
Better For Gold - II
• What does this macroeconomic outlook imply for the gold prices?
• This is a great question, as some of the trends will be supportive for
the yellow metal, while others might constitute headwinds, and some
factors could theoretically be both positive and negative for the price
of gold.
• For instance, the end of the recession seems to be bad for the
yellow metal, but gold often shines during the very early phase of an
economic recovery, especially if it is accompanied by reflation, i.e., a
return of inflation.
• The tailwinds include the continuation of easy monetary and
fiscal policies.
• The federal debt will remain high, while the interest rates will stay
low, supporting the gold prices
6. Gold Price & Real Interest Rates
• There is also an upward risk of
higher inflation.
• In such a macroeconomic
environment, the U.S. dollar
should weaken against other
currencies, thus supporting
gold prices.
7. Gold Prices & US Dollar
• As a reminder, the
relative strength of the
greenback in recent
years (see the chart
behind) limited the
gains in the precious
metals market.
8. Gold Prices & US Dollar - I
• However, there are also headwinds. You see, levels are
significantly different concepts than changes.
• The latter often matter more for the markets. What do I mean?
Well, although both monetary and fiscal policies will remain
accommodative, they will be less accommodative than in 2020.
• Although the real interest rates should stay very low, they will
not decline as much as last year (if at all).
• In other words, the economy will normalize this year after
suffering a deep downturn in 2020, so the economic policy will
be less aggressive.
9. Gold Price & US Public Debt
• Hence, the level of bond
yields and the ratio of federal
debt to GDP should stabilize
somewhat – actually, thanks
to the rebound in the GDP in
the third quarter of 2020, the
share of public indebtedness
in the U.S. economy has
decreased, as the chart
behind shows.
10. Gold Price & US Public Debt - I
• The price of gold could be supported by the continuation of easy
monetary and fiscal policies, low real interest rates, and weak dollar,
it’s potential to rally could be limited.
• The accommodative stance of central banks and unwillingness to
normalize the monetary policy for the coming years should prevent a
significant bear market in gold, but without any fresh triggers of
further declines in the bond yields or without the spark of inflation,
the great bull market is also not very likely.
• So, unless we either see a serious solvency crisis or sovereign debt
crisis, or an substantial acceleration in inflation, gold may enter a
sideways trend.
• Or it can actually go south, if it smells the normalization of monetary
policy or increases in the interest rates.
11. The Gold Market In 2020 And Beyond
• Was the past year good for the yellow metal?
• What happened in 2020 and what will 2021 be like for the gold market?
• Nobody expected the Spanish Inquisition! And nobody expected a pandemic in 2020! Oh
boy, what a year.
• How good that 2020 has already passed! It was an extraordinary year, unlike any other in
many decades. Unfortunately, 2020 was a disastrous time for many people all over the
world who suffered from COVID-19 or whose relatives and friends died because of
the coronavirus or the collapse of the healthcare system.
• Our thoughts are with them. Many others lost their jobs or income, and all of us suffered
from loneliness and limited freedom during the Great Lockdown.
• Indeed, it’s good that 2020 is over – and we hope that 2021 will be much better!
• And what did 2020 mean for gold? Well, it turned out that last year was gracious to the
yellow metal. As the chart below shows, gold entered 2020 with a price of $1,515 per
ounce, and finished the year at $1,888 (London P.M. Fix as of December 30). It means
that the shiny metal rose over 24 percent – that’s not bad considering other assets
were hit really hard during the economic crisis!
13. Gold Fluctuation
• 2020 was definitely better for gold prices than 2019, when the yellow metal gained “only” over
18 percent.
• As I didn’t predict the global pandemic (who did?), I didn’t forecast such strong gains in my base
scenario.
• However, given the inversion of the yield curve in 2019, I expected a kind of economic downturn
that would positively impact gold prices.
• And indeed, the black swan (or perhaps a white or gray swan) landed in 2020, pleasing the gold
bulls. However, despite gold’s impressive performance, some people complain that gold didn’t rally
more during the coronavirus turmoil.
• I completely understand this disappointment – after all, the world suffered its deepest economic
downturn since the Great Depression, larger even than the Great Recession, and gold gained only
24.6 percent?
• However, the crisis was deep but very short, as we quickly learnt how to live with the virus, while
our brilliant scientists swiftly developed vaccines. Moreover, this time banks were resilient and there
was no financial crisis.
• Another factor is that gold actually rallied more than 36 percent until its peak in August (or
more than 40 percent counting from the bottom), but it later corrected somewhat.
14. Phases In The Gold Market In 2020
• A pre-pandemic bullish phase caused by easy monetary policy
and worries about the coronavirus, that lasted until mid-February,
with the price of gold increasing from $1,515 to $1,604 (5.9 percent)
on February 19, just before the stock market crash.
• The bullish period (with a short bearish correction) more closely
related to the unfolding pandemic, the stock market crash and
central banks’ panic and bold responses. It started on February 20
and ended on March 6, when the price of gold reached $1,684
(gaining 5 percent).
• The bearish phase caused by investors’ panic selloff of all assets in
order to raise cash. It lasted until March 19, when the price of gold
reached its 2020 bottom of $1,474 (a decline of 12.5 percent).
15. Phases In The Gold Market In 2020 - I
• A super bullish phase that lasted until August 6, when the price of gold
reached its all-time peak of $2,067, soaring 40.2 percent in just four and
half months. This period can be split into: the bullish phase, caused by the
coronavirus shock, that lasted until mid-April; the consolidation period, that
came when the financial markets calmed down as the initial doomsday
scenarios didn’t materialize, and lasted from mid-April to mid-June; and
another bullish phase, caused by disastrous economic data for the first half
of 2020, and massive stimulus programs delivered by the central banks
and governments.
• The bearish period, during which the yellow metal declined to $1,763 on
the last day of November, or 14.7 percent, due to positive vaccine-related
news and reduced geopolitical uncertainty after the U.S. presidential
elections.
• The bullish remainder of the year, during which gold rose to $1,888, or 7
percent, caused by the dark COVID-19 winter, poor economic data,
strengthened prospects of another government financial stimulus, and
related worries about the rising U.S. debt.
16. All Bodes Well For Gold In 2021
• After all, the U.S. central bank won’t cease conducting its very
easy monetary policy, while a Biden-Yellen duo will continue the
dovish fiscal policy inherited from the Trump administration.
• Such a policy mix should support gold prices.
• Of course, the scale of accommodation would be lower than in
2020, so gold’s performance in 2021 could be worse than last
year.
• But unless we see a normalization in the monetary policy and
an increase in the real interest rates, the bull market in
gold shouldn’t end.
17. Gold News & Analysis
• XAU/USD has been unable to hold onto its as Treasury yields bounced
back.
• The Confluence Detector shows that gold has significant support at
$1,878.
• The Technical Confluences Detector is showing that XAU/USD has robust
support at $1,878, which is the convergence of the Fibonacci 38.2% one-
week, the Bollinger Band four-hour lower, the Fibonacci 23.6% one-month
and the Pivot Point one-day Support 1.
• Gold price rebounds on dovish Fed expectations despite hotter US
inflation.
• Weakness in US dollar and Treasury yields motivate gold bulls.
• Source:
• Gold Price Analysis: XAU/USD well-supported at $1,878 after recent retreat – Confluence Detector (fxstreet.com)
18. Gold News & Analysis - I
• Gold continued with its struggle to find acceptance or build on the momentum beyond the $1,900 mark and
witnessed some fresh selling on the last trading day of the week.
• The US dollar made a solid comeback and moved back closer to weekly tops.
• This, in turn, was seen as a key factor that exerted some downward pressure on the dollar-denominated
commodity.
• Apart from this, an extended rally in the global equity markets further acted as a headwind for traditional safe-
haven assets, including gold.
• The commodity dropped to fresh session lows, below the $1,885 level in the last hour and has now erased
the previous day's post-US CPI gains.
• However, a combination of factors might help limit any deeper losses. Investors shrugged off signs of
increasing inflationary pressure and seem convinced that the Fed will retain its ultra-lose monetary policy
stance for a longer period.
• This, along with a further decline in the US Treasury bond yields, might lend some support to the non-yielding
gold.
• Source:
• Gold Price Analysis: XAU/USD slides below $1,885 level, erases Thursday’s modest gains
(fxstreet.com)
