Gold has been on the rise in 2020, catching widespread attention as it rallied to a record-breaking $2,000 per ounce earlier this year.
Though its price has since pulled back to around $1,900, it has remained at historically high levels amid low to negative interest rates and economic uncertainty related to the ongoing covid-19 pandemic, the analysts wrote in a note.
Making a bull case, Haywood analysts pointed to a “fragile” US economy and ongoing central bank “money printing” to lift expectations for inflation and put pressure on the US dollar. With that in mind, they suggested investors buy dips in both gold and silver equities.
Analysts at UBS took a similar view in a recent note outlining their thoughts on factors supporting gold and how it may trade into 2021. One clear driver has been investment demand, UBS analysts said, with cash flowing to both bars and coins, as well as exchange-traded funds, or ETFs.
“In [the first half of 2020], investment demand for gold, which consists of demand for bars and coins and inflows into gold exchange-traded funds (ETFs), accounted for nearly 56% of total demand,” the analysts wrote. “This ranks as the highest level over the last two decades and exceeds the previous record of nearly 46% in 2009.”
The analysts pointed to some of the usual suspects underpinning gold’s rise, including falling US real interest rates, market volatility and a weak dollar. Looking at ETF investment figures, UBS said North American investors have dominated demand, accounting for 65% of inflows in the first half of the year.
Still, since the first half of 2020, buying has slowed, they said. “So to see gold rising from current levels, we think further investment-related demand is needed.”
UBS analysts also said they see further inflows should the pandemic cause more economic uncertainty and the US stimulate the economy through a significant fiscal package, which could bump up inflation while the Federal Reserve holds rates low.
Making a gold price projection, Bloomberg analyst Mike McGlone said he sees gold breaking out of its recent trading range at around $1,900/oz.
“The gold spring is likely to uncoil soon and the path of least resistance remains upward, in our view,” he said, noting he expected gold to climb to around $2,000/oz.
Meanwhile, gold’s rise in 2020 has helped support the exploration sector and is also expected to boost mining equities as third quarter results come in.
S&P Global Market Intelligence analyst Christopher Galbraith noted that, while exploration budgets have dropped for most metals, gold exploration budgets have been relatively stable with a 1% year-over-year increase to $4.34 billion expected in 2020. Gold exploration eked out the modest gain despite pandemic related lockdowns that curbed activity earlier in the year.
“These strong indicators for near-term gold exploration, coupled with a still-strong gold price that is likely to set a new floor above estimated reserves prices, support the likelihood of continued strong gold exploration in 2021,” Galbraith added.
Spot gold declined 0.4% to $1,871.08 per ounce by 3 p.m. EDT Thursday, while US gold futures dropped 0.5% to $1,869.90 an ounce.
