The economic data, the stock market, and businesses' actual health are completely out of sync. That is because the U.S. stock market is still sitting near its record high while enterprises are consistently forced to close. With the new variant of coronavirus, chances are that lawmakers are likely to keep their guards up entering the first quarter of 2021 and that they can reinstate more lockdowns.
Struggling businesses are more likely to file for more bankruptcies, and there are greater chances that it will create more shocks for the global economy. Such an event could once again help the gold price to move higher.
Something that is surely going to influence the gold price is the trend in the dollar index, which is determined by the Federal Reserve's monetary policy stance. According to the most recent Federal Reserve meeting, it was clear that the Fed is more optimistic about the economic recovery, and this made them upgrade the growth forecast for the U.S. economy.
As Mentioned Before in (23th January 2021) - I still Think the GOLD Price Will Reach All Time Highs in 2021 & 2022
Here Are the Reasons why I Say that -
7 Reasons Gold will continue to Grow
Correlation to Inflation Certainly, during times of economic crisis, investors flock to gold . When the Great Recession hit, for example, gold prices rose. But gold was already rising until the beginning of 2008, That said, gold prices rose further, even as the economy recovered . Essentially that means, as more people buy gold , the price goes up, in line with demand. It also means there aren't any underlying "fundamentals" to the price of gold . If investors start flocking to gold , the price rises no matter what shape the economy is or what monetary policy might be. That doesn't mean that gold prices are completely random or the result of herd behavior. Some forces affect the supply of gold in the wider market, and gold is a worldwide commodity market, like oil or coffee .
Supply Factors Unlike oil or coffee , however, gold isn't consumed. Almost all the gold ever mined is still around and more gold is being mined each day. If so, one would expect the price of gold to plummet over time, since there is more and more of it around. So, why doesn't it? Aside from the fact that the number of people who might want to buy it is constantly on the rise, jewelry and investment demand offer some clues. "It ends up in a drawer someplace." The gold in jewelry is effectively taken off the market for years at a time. Even though countries like India and China treat gold as a store of value, the people who buy it there don't regularly trade it (few pay for a washing machine by handing over a gold bracelet). Instead, jewelry demand tends to rise and fall with the price of gold . When prices are high, the demand for jewelry falls relative to investor demand.
Central Banks Big market movers of gold prices are often central banks. In times when foreign exchange reserves are large, and the economy is humming along, a central bank will want to reduce the amount of gold it holds. That's because the gold is a dead asset—unlike bonds or even money in a deposit account, it generates no return. The problem for central banks is that this is precisely when the other investors out there aren't that interested in gold . Thus, a central bank is always on the wrong side of the trade, even though selling that gold is precisely what the bank is supposed to do. As a result, the price of gold falls. Central banks have tried to manage their gold sales in a cartel-like fashion, to avoid disrupting the market too much. Something called the Washington Agreement essentially states that the banks won't sell more than 400 metric tons in a year. It's not binding, as it's not a treaty; rather, it's more of a gentleman's agreement—but one that is in the interests of central banks, since unloading too much gold on the market at once would negatively affect their portfolios.
ETFs Besides central banks, exchange-traded funds (ETFs)— which allow investors to buy into gold without buying mining stocks—are now major gold buyers and sellers. Both ETFs trade on the exchanges like stock and measure their holdings in ounces of gold . Still, these ETFs are designed to reflect the price of gold , not move it.
Portfolio Considerations Speaking of portfolios, A good question for investors is what the rationale for buying gold is. As a hedge against inflation , it doesn't work well. However, seen as one piece of a larger portfolio, gold is a reasonable diversifier. It's simply important to recognize what it can and cannot do. In real terms, gold prices topped out in 1980, when the price of the metal hit nearly $2,000 per ounce (in 2014 dollars). Anyone who bought gold then has been losing money since. On the other hand, the investors who bought it in 1983 or 2005 would be happy selling now. It's also worth noting that the 'rules' of portfolio management apply to gold as well. The total number of gold ounces one holds should fluctuate with the price. If, for example, one wants 2% of the portfolio in gold , then it's necessary to sell when the price goes up and buy when it falls.
Retaining Value One good thing about gold , is that the purchasing power of gold has stayed quite constant and largely unrelated to its current price.
The Bottom Line If you're looking at gold prices, it's probably a good idea to look at Investing in GOLD Throughout Year 2021
I hope this was clear and informative for all of you, I wish you a good 2021! Stay Safe!
Global Fx education
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XAUUSD HAS REACHED THE WEEKLY DEMAND AREA WE WILL MONITOR PRICE IN THIS ZONE (GREEN) AND IN THE LOWER GREY AREA FOR LONG TERM BUY OPPURTUNITY
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XAUUSD Has reached the lower GREY AREA (Right shoulder) monitor price Action for Confirmation - BUY ENTRY (1768 - 1780)
Sorry I couldn't help but be contrary....Seven Reasons why Gold won’t go up….
1. Jewelry sales fell significantly during the Pandemic - there is no guarantee that they will return to pre Covid levels. Even if they do this may take 2-5 years or until the world is fully vaccinated.
2. Gold is losing its sheen as an asset - crypto now competes with gold for investors. Crypto is here to stay and a favorite among millennials. Gold is now seen as “old man investment” (think Peter Schiff) with more exciting
and speculative places to put your money according to the next generation - this generation change can’t be undone.
3. Inflation proves transitory and Investors realize that better returns lie elsewhere as Real Yield improve. Even if you think inflation is going to stick, TIPS still remain a better bet
4. Unlike real estate, oil, or shares of corporations, gold has very little fundamental value upon which to base a realistic price. The future price of Gold remains uncertain (apart from people in this article saying it is going to
go up) For this reason alone should always limit your portfolio holdings of Gold.
5. Once Fed starts to talk tapering and yields return upwards than the Gold Party is over.
6. Buying gold is a defensive measure: a guard against inflation, currency devaluation, the failure of less tangible assets, and other woes. We are coming out the other side of a Pandemic with major investments in
infrastructure around the globe to drive economies and growth. Wouldn’t you rather put your hard earned money in construction companies that are going to grow and even pay a dividend yield?
7. Gold tends to rise in periods of uncertainty - which is why it rose during 2019 and parts of 2020. While we still have a major global issue on our hands to deal with Covid and get the planet vaccinated, the level of
uncertainty about the future has significantly reduced. This makes investing in other assets around the globe less risky and better choices than Gold.
Overall the demand for Gold to reduce risk and guard against inflation is waning. I only see one factor that will drive Gold higher in the near term and that is a weaker USD. However, we have to wait to see how the Fed plays out its taper talks before we know the answer to that one....
Global_Fx
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@majicktrader, Thanks for Your Thoughts, only time will tell and waiting for the FED to play the game :) Stay Safe out there!
bjorn2z
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@majicktrader, What was the uncertainty during the summer of 2019?
majicktrader
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Hong Kong marches and clashes with Chinese Govt
bjorn2z
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@majicktrader, price of gold exploded in USD because of a little chinese domestic issue??
chriscase
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@majicktrader, It's doubtful that the crypto tulip casino is going to replace gold.
jasonsantoso
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@majicktrader, thanks for your insight, but I think some of your reasons are doubtful:
1. Jewelry sales fell significantly during the Pandemic > it rose quite significantly in May 2021, although it's due to inflation fear and economic recovery.
2. Gold is losing its sheen as an asset - crypto now competes with gold for investors > Bitcoin is the only crypto that can rival gold, due to its reputation as first mover advantage and supply limit. Besides, crypto price movement are still too volatile. Even the big money put only a small part of their portfolio in crypto due to large swings in price.
3. Inflation proves transitory and Investors realize that better returns lie elsewhere as Real Yield improve > this is probably true.
4. Unlike real estate, oil, or shares of corporations, gold has very little fundamental value upon which to base a realistic price > gold's fundamental as a store of value are obviously depending on increase in money supply.
5. Once Fed starts to talk tapering and yields return upwards than the Gold Party is over > from late 2015 to early 2020 when interest rates are trending upwards, gold price also rose. It's more heavily correlated to real interest rate rather than nominal interest rate.
6. Buying gold is a defensive measure > this is absolutely true.
7. Gold tends to rise in periods of uncertainty > this is absolutely true.
majicktrader
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@jasonsantoso, I was being contrary and trying to illustrate that there are as many reasons for gold falling as it is rising. The real answer is that the future of Gold is uncertain. While we all may like to think it is going up, this may not be the case.
1BigPapi
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@majicktrader, I will agree that zero of my investor friends under 40 have any interest in gold. I.. and they.. do in fact think its a boomer investment. If the dollar isn't backed by gold anymore, why should I care about it as a store of value? The government doesn't care that much.. Other than some use in microprocessors, jewelry or whatever, its not a huge commodity (so far as I know). Yes crypto is more speculative, but overall the gains holding Bitcoin absolutely blow away anything gold could or can provide since its first came to existence.
Doesn't mean gold doesn't have value, but I say this to illustrate the generational difference you say. I'm sure some young folks have gold, or want say a gold Rolex watch.. but I think golds days as a favored investment in tough times aren't so clear now, you have a generation that grew up post-gold standard dollars and see the promise of what crypto is promising with decentralized financial services, economic, and other technical advancements that just appeal to the tech savvy younger generations. Whether that is smart or not will be seen in time.
UnitedFreedomJapan
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The only reason the price of gold could rise is the sudden popularity of gold teeth, but unfortunately, rap has evolved and rappers are no longer wearing gold teeth.
1. Jewelry sales fell significantly during the Pandemic - there is no guarantee that they will return to pre Covid levels. Even if they do this may take 2-5 years or until the world is fully vaccinated.
2. Gold is losing its sheen as an asset - crypto now competes with gold for investors. Crypto is here to stay and a favorite among millennials. Gold is now seen as “old man investment” (think Peter Schiff) with more exciting
and speculative places to put your money according to the next generation - this generation change can’t be undone.
3. Inflation proves transitory and Investors realize that better returns lie elsewhere as Real Yield improve. Even if you think inflation is going to stick, TIPS still remain a better bet
4. Unlike real estate, oil, or shares of corporations, gold has very little fundamental value upon which to base a realistic price. The future price of Gold remains uncertain (apart from people in this article saying it is going to
go up) For this reason alone should always limit your portfolio holdings of Gold.
5. Once Fed starts to talk tapering and yields return upwards than the Gold Party is over.
6. Buying gold is a defensive measure: a guard against inflation, currency devaluation, the failure of less tangible assets, and other woes. We are coming out the other side of a Pandemic with major investments in
infrastructure around the globe to drive economies and growth. Wouldn’t you rather put your hard earned money in construction companies that are going to grow and even pay a dividend yield?
7. Gold tends to rise in periods of uncertainty - which is why it rose during 2019 and parts of 2020. While we still have a major global issue on our hands to deal with Covid and get the planet vaccinated, the level of
uncertainty about the future has significantly reduced. This makes investing in other assets around the globe less risky and better choices than Gold.
Overall the demand for Gold to reduce risk and guard against inflation is waning. I only see one factor that will drive Gold higher in the near term and that is a weaker USD. However, we have to wait to see how the Fed plays out its taper talks before we know the answer to that one....