The pandemic changed the world and gold price will reap the benefits
By Anna Golubova of kitco.com
After a record year, gold is bound to see more gains in the medium and long-term, according to the CPM’s Gold Yearbook.
The pandemic has changed the world, making some of the existing problems even worse and setting gold up to benefit, the CPM Group said.
“While the pandemic will eventually pass, it has left the world changed and has in fact compounded and worsened some of the factors that are supportive of gold prices,” the CPM Group said.
The biggest drivers that will support gold as the world reopens include sovereign and private sector debts, deficits, and ultra-loose monetary policies.
Governments around the world will struggle to reverse the fiscal policies introduced as a response to the pandemic, said the CPM Group, citing lackluster economic growth in coming years.
“This scenario positions gold well for further gains in the medium to long term,” the Yearbook stated. “The pandemic has deepened these problems and will make it harder to reverse some of these issues, which will help to keep investors interested in the metal.”
During the Prospectors & Developers Association of Canada (PDAC) 2021 virtual conference, CPM Group’s vice president of research Rohit Savant said that gold could rally back to $1,995 an ounce this year, which is a 5% gain from last year’s closing price.
It is important to keep in mind that parts of the world could struggle with the pandemic well into 2022 and even 2023.
“As the more fiscal stimulus is poured into the system, monetary authorities will have to stretch themselves further to offset any negative fallout from such fiscal stimulus on bond yields, which should be supportive of gold prices,” the CPM Group noted.
The CPM Group projects a softer U.S. dollar in 2021 but does not see a total currency collapse.
The stock market is forecasted to keep climbing despite looking top-heavy. “The returns from these markets may not be as attractive as those seen over the past couple of years. A combination of top-heavy equity markets and low yields on debt makes gold an attractive portfolio diversifier,” the CPM Group said.
Also, the U.S.-China relationship is a key driver to keep a close eye on this year. “Irrespective of how these relations end up, the deteriorating relations will leave a lot of wreckage on the way,” according to the Yearbook.
The use of gold as a portfolio diversifier is expected to grow this year, which should help the prices move higher.
Investor demand will also remain strong this year, with net additions holdings projected to reach 42.8 million ounces.
Central banks are projected to remain net buyers of gold in 2021, with about seven million ounces estimated to be bought. “Many central banks, especially in developing countries, continue to want to diversify their assets away from the U.S. dollar and euro and are likely to continue adding to their holdings in the foreseeable future,” the Yearbook said.
Total gold supply is forecast to climb to 131.2 million ounces in 2021, led by increased mine production, the CPM Group added.
This article is published with the special permission of the CPM Group. For more views and news you can visit https://www.cpmgroup.com/
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