Dubai: Gold buyers were seen turning increasingly wary since 2021 began as the price of the in-demand yellow metal have remained at high levels in the past week. But all hope is not lost yet.
Gold is currently priced at $1,900-levels (currently $1,916 or Dh7,037) – which is generally considered a price range that is averting buyers from stocking up on it, which has led to an expected drop in demand.
“Gold climbed to new record highs, living up to its reputation as a safe haven,” explained Carsten Menke, Head of Next Generation Research at Switzerland-based Bank Julius Baer
However, Menke further opined that gold has likely moved past its peak and should trend towards $1,700 (Dh6,244) per ounce, which is a price that has historically seen a rush in buyer demand.
Gold likely moved past its peak and should trend towards $1,700 (Dh6,244) per ounce
What’s moving prices?
Analysts are widely of the opinion that market news and headlines is likely to have the biggest impact on the price of gold this week and beyond, and it has so far.
Sentiments of market investors, who play a detrimental role in price movements, are currently calm given that pandemic-induced uncertainty has reduced, and the continuity of this trend is integral to pushing down prices.
However, this was not the case in 2020 when uncertainty peaked and prices soared.
“The spike in uncertainty and risk aversions pushed gold prices to a record high, just above $2,060 (Dh7,566) per ounce, confirming its status as a safe haven during times of crisis,” Menke added.
Prices won’t stay high
Does this mean prices will remain high as long as vaccines are being rolled out, despite reports of a new COVID-19 strain spreading in some parts of the world? To the relief of buyers, no, it won’t stay this way.
Gold prices started off 2021 with a surge that has the metal trading above seven-week highs at $1,940 (Dh7,125) per ounce, a gain of just over $40 (Dh146), suggesting prices may stay above $1,900 (Dh6,978) this month.
“Gold’s record run is unlikely to be revived,” Menke noted, when forecasting commodity price trends for the year ahead. “The market should leave the corona crisis behind and global growth should continue to recover in 2021.”
Not the time to buy
And as rightly forecasted, the price of gold was already seen slipping more than usual. The price of gold dropped 2 per cent at $1,907 (Dh7,004) an ounce on Wednesday, and was further slipping at least half as much on Thursday.
“The expectation that gold prices will rise because the US dollar will weaken is too simple,” Menke wrote. “While both generally move in opposite directions, the impact of the dollar on gold should not be seen in isolation.”
“We see gold prices moving lower rather than higher in 2021 (but) the downside should however be limited as uncertainties around the coronavirus crisis prevail,” Menke cautioned, while adding that current levels do not offer a buying opportunity.
Investor appetite key
As major economies across the world gear up to administer the COVID-19 vaccine building up the hope that normalcy will return soon, the price of the yellow metal has come under pressure.
“No matter the time horizon, short term or long term, the outlook for gold prices primarily depends on the demand from investors seeking a safe haven,” Menke further explained.
“This is a repeated pattern that we have been observing since gold prices started to trade freely in the mid-1970s. Whenever investment demand picked up, gold prices started to rise and whenever it faded, they started to fall.”
Even before the discovery of the vaccine, economic data across the world showed better-than-anticipated recovery.
The International Monetary Fund (IMF) had revised its global GDP forecast to down 4.4 per cent in October 2020 from a contraction of 5.2 per cent in June-end. Such indicators have led to improvement in investor sentiments.