Inflation Forecasts Recover Covid Plunge But GLD Outflow and Gold Price Losses See 2021 Targets Cut

IMG Auteur
Published : November 25th, 2020
732 words - Reading time : 1 - 2 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
Our Newsletter...
GOLD PRICES steadied in Asian and London trade Wednesday, rallying $15 per ounce after hitting $1800 for the 1st time in 4 months as inflation forecasts rose but longer-term interest rates fell amid a raft of new stimulus planning to try offsetting the global economic depression caused by Covid lockdowns.
"We see a risk of rising long-term interest rates," says the new 2021 commodities outlook from US brokerage Bank of America Securities, "[and this] will put gold's rally on pause until inflation expectation starts rising faster."
But 10-year inflation expectations today reached 1.77% per annum according to bond-market prices, some 0.89% above 10-year interest rates – the biggest gap in 4 weeks – and matching late-August's recovery of New Year 2020 levels.
24hGold - Inflation Forecasts ...
Led by analyst Michael Widmer, BoA's team hiked its longer-term gold price forecast from $2000 to $3000 per ounce in April, and while "ongoing fiscal and monetary stimulus should push the yellow metal above $2000 again," that higher level now looks "tricky".
A pullback was "inevitable" says Aakosh Doshi, head of commodities research at US financial giant Citi, but the vaccine news will only slow, not finish, gold's underlying rise.
Having forecast $2000 gold in February this year – before the Covid Crisis hit Western financial markets – Doshi says the metal will regain that level in 2021 "as long as the Fed remains dovish enough."
With gold prices extening this week's plunge in Tuesday, giant gold-backed ETF the SPDR Gold Trust (NYSEArca: GLD) yesterday saw its sharpest 1-day liquidation since mid-March's Covid Crash hit all financial markets, shrinking the ETF by 1. 1% to its smallest size since early July.
The smaller and cheaper iShares Gold product (NYSEArca: IAU) held unchanged in contrast, but still hasn't expanded for 7 sessions.
Chart of GLD gold ETF's size in gold backing vs. benchmark bullion price. Source: BullionVault
Government borrowing in the UK – the world's 5th largest national economy, now set finally to leave the European Union on 31 December – will hit a peacetime record of £384bn ($512bn) in 2020, said finance minister Rishi Sunak in Parliament today, some £280bn of its specifically spent "to get our country through coronavirus".
Freezing public-sector wages and now forecasting that UK unemployment will rise by 1 million to 2.6m by mid-2021, the government paid £10bn more for personal protective equipment such as gloves, aprons and facemasks bought for health workers during the first wave of Covid-19 than it would have done if prices hadn't jumped, the NAO spending watchdog meantime said Wednesday.
In the US, and with Joe Biden already working with fellow Democrat politicians to push for a second round of stimulus spending before he moves into the White House in January, "The president-elect [is] saying something should happen now [because] the economy is at a very precarious moment," says transition-team advisor Jared Bernstein.
"Hawks have been sidelined and outnumbered" meantime at the European Central Bank, the Financial Times reports, with outgoing policymaker Yves Mersch " preparing to take a final stand" against more QE bond purchases, now at €3.5 trillion following the 19-nation currency bloc's Covid response.
Fiscal and monetary policies "will remain highly accommodative" following the pandemic, says global bank and London bullion market-maker HSBC, most especially with the incoming Democrat White House likely to push for a "bigger fiscal stimulus.
"All this should continue to provide gold with a reason to go higher in the medium to longer-term."
Short-term interest rates set by the US central bank proved more important for gold prices in the wake of the global financial crisis a decade ago, agrees US investment bank Goldman Sachs, repeating its $2300 forecast for 2021 as inflation rises towards 3% per year – breaching the Federal Reserve's 2% target as the Fed says it would like – leading to "more inflows to gold in order to hedge it."
But gold prices have peaked together with "risk aversion" says Australian bank and brokerage Westpac, revising its view "as gold has been on a losing streak amid better economic data and more risk-on light of positive Covid-19 vaccine news."
Westpac's senior economist Justin Smirk now predicts average annual gold prices will fall below $1760 in 2021 and then drop to $1633 in 2022.
Gold in 2020 has so far average $1762 per ounce, a new all-time record 5.5% above the previous annual peak of 2011.
You can receive your first gram of Gold free by opening an account with Bullion Vault : Click here.
Read the rest of the article at Bullion Vault
<< Previous article
Rate : Average note :0 (0 vote)
>> Next article
The London Gold Market Report is the daily market review from BullionVault, the world's largest physical gold and silver market for private investors. A full member of professional trade body the London Bullion Market Association, BullionVault publishes the LGMR every day that the market is open, bringing you insider comment and analysis from the very center of the world's $240 billion-a-day physical gold trade, and putting the latest gold price action into its wider financial and economic context. Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Flying Blind
26 JanJ.4
It would be really great if it were the scale and scope of the government that was shrinking, however, "the long emergency" feeds right into their ...
Flying Blind
26 JanJim C.0
Correct, for the most part. Socialism produces nothing and takes everything. Democrat Socialism appears to be of the most virulent kind, like par...
Flying Blind
25 JanPeter K.3
God, what a load of shit. Sounds like your hankering for a communist agrarian utopia, a la pol pot style. I've got news for you, the world ...
Rough Ridin’ with Biden
22 JanS W.-1
Joe's main problem is that he has no delivery when speaking. In fact he sounds like death warmed up. The USA is technically bankrupt finan...
The Zeitgeist Wants What the Zeitgeist Wants
20 JanJim C.-1
Trump appeared weak, and was...weak. And always was more talk then action. Asking Democrats if they wanted their help with suppressing massive loo...
The Zeitgeist Wants What the Zeitgeist Wants
19 JanJ.-1
The country seems to be lurching toward a cold civil war regardless of anything Trump may or may not do. Doing nothing might be all it takes to he...
This is How You Can Dodge Facial Recognition Software
19 JanFalconflight
With such insight and wit; you should be able to parlay it w/ a gig at Buzzfeed or HuffPuff.
Federalism, Not Breakup
19 JanFalconflight-1
There are 50 states currently. There are currently 435 Congressman. There is nothing in the Constitution maxing Representatives at 435 or that st...
Most commented articlesFavoritesMore...
World PM Newsflow