In our first gold webinar for 2021, “Gold: 2020 Demand Trends & 2021 Market Outlook”, we summarize the key highlights.
What macro factors support a positive outlook for gold?
The outlook for gold remains bullish, driven by strong fundamentals that will continue to prop up demand and prices in 2021. Exchange traded funds (ETF) remain particularly supportive. There were some redemptions in November and December 2020 on a clear United States (US) election result and positive vaccine news. However, gold ETF inflows returned in January 2021.
Despite these short-term fluctuations and the fact that the gold price is around 10% off its August 2020 peaks, ETFs still hold a near-record 3,800 tonnes of the metal. Sentiment in the futures market also remains positive. Since August 2020, there has been no real decline in traders' net long positions, suggesting that tactical investors remain bullish on the sector.
A hedge against the deficit and inflation
Investors’ optimism is being underpinned by a combination of macro factors, the most prominent of which is the growing US deficit. Traditionally, there is an inverse correlation between the price of gold and the deficit. 2020 saw the latter hit a record high in the US, where it registered at -15% of gross domestic product (GDP). This was, in turn, reflected in the rising cost of gold. On top of this, both increasing inflationary pressures and lower-for-longer interest rates should further cushion the metal's value.
Gold's role as an effective hedge against inflation also remains in play. The 10-year breakeven rate in the US (the yield difference between a nominal bond and an inflation-linked issue sharing the same maturity, commonly used as a measure of anticipated inflation), is at its highest level since 2014.
Low interest rates look set to continue
Even more significant are continued expectations for low interest rates. Even though the 10-year US Treasury yield recently rose by around 25 basis points and increasingly ‘normal’ yields are expected this year, real interest rates remain at a record low of -0.1%. The US Federal Reserve is unlikely to hike short-term rates, and its bond-buying policy will be maintained.
These two factors should not only keep the gold price at a reasonable level but could also help it rally in the coming months. Investors are also keeping a watchful eye on President Biden's fiscal policies and any movements in the US dollar. Although the dollar did move higher in January 2021, it is likely to remain weak for the rest of the year.
The Silver Reddit Rally
Gold is not the only precious metal in play at the moment. Its often-overlooked sibling, silver, has garnered a lot of attention over the past few weeks after a rally that emerged on the back of the social-media-driven (mainly Reddit) flash-mob investments in heavily shorted stocks, such as GameStop and AMC.
However, we should note that despite significant spikes in the daily volumes of silver trading, they remain considerably lower than those of gold. Thus, when speculative money does appear, the silver price tends to rally dramatically. Indeed, the volatility of the largest silver ETF over the last decade is almost double that of the equivalent gold ETF. Although silver may appear an attractive way to improve portfolio diversification, it may not always be the suitable choice given the significant differences in the underlying demand drivers.
All the information contained in this document is as of date indicated unless otherwise noted. All information is from SSGA unless otherwise noted and has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the accuracy of the information and State Street shall have no liability for decisions based on such information.
The views expressed in this material are the views of SPDR Gold Strategy Team through the period ended 4 February 2021 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA's express written consent.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Frequent trading of ETFs could significantly increase commissions and other costs such that they may offset any savings from low fees or costs.
Commodities and commodity-index linked securities may be affected by changes in overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, or political and regulatory developments, as well as trading activity of speculators and arbitrageurs in the underlying commodities
Investing in commodities entail significant risk and is not appropriate for all investors.
Diversification does not ensure a profit or guarantee against loss.
Nothing contained herein constitutes investment advice and should not be relied upon as such.
Hong Kong: State Street Global Advisors Asia Limited, 68/F, Two International Finance Centre, 8 Finance Street, Central, Hong Kong. T: +852 2103-0288. F: +852 2103-0200.
All forms of investments carry risks, including the risk of losing all of the invested amount. Such activities may not be suitable for everyone. The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor. All material has been obtained from sources believed to be reliable. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
ETFs trade like stocks, are subject to investment risk, fluctuate in market value and may trade at prices above or below the ETFs net asset value. Brokerage commissions and ETF expenses will reduce returns. Standard & Poor’s®, S&P® and SPDR® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC (SPDJI) and sublicensed for certain purposes by State Street Corporation. State Street Corporation's financial products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates and third party licensors and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability in relation thereto, including for any errors, omissions, or interruptions of any index.
This website is issued by State Street Global Advisor Asia Limited and has not been reviewed by the Securities and Futures Commission ("SFC").