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In 2021, gold will continue to benefit from many of the factors that drove it to new all-time highs in 2020, surpassing around $2,200 by year-end. This is in line with future M2 money supply growth in the US and monetary policy should continue to be supportive.
In addition, the prospect of further quantitative easing, negative deposit rates and negative-rate government bond auctions are increasing the upside potential for gold.
Geopolitical tensions in general now characterise the new global landscape and play in favour of gold as a safe haven asset. Although economies will reopen with the arrival of the COVID-19 vaccine, gold is expected to benefit from a recovery in consumer demand, especially in Asia.
A forecast of upside risks to the gold price is the prediction for 2021. Investors are maintaining substantial long positions in gold but as in 2020, they will continue to prefer physical gold over financial gold and this means we can expect strong underlying demand.
Onn the other hand, a fall in Silver prices is considered unlikely, while a rise towards $32 an ounce by the end of the year is expected with risks clearly on the upside. Silver should be supported by a gradual recovery in the global economy, the proliferation of green economy models in major countries and the same monetary factors that support gold.
Stimulus measures to be strongly geared towards sustainable activities are expected, offering medium-term support for silver, which is an essential component of solar panels. Moreover, with the gold-silver price ratio still above its 30-year average, silver remains undervalued relative to the yellow metal.
Platinum was one of the worst performing precious and industrial metals in 2020, failing to match the rally of, for example, gold, silver and palladium. Platinum’s disappointing performance can be attributed to a slump in demand for jewellery, a slowdown in the automotive industry and a significant supply surplus. These factors, together with the abandonment of diesel engines, make a significant acceleration in 2021 unlikely.
In terms of automotive demand, the secular transition away from diesel is likely to remain a drag on the platinum price, as around 40% of demand has been for this type of car in recent years. In the long term, the hope for hydrogen-powered cell technology is positive, but in the short term it is unlikely to fill the gap caused by weak car demand.
In 2021, the gold mining sector should see a number of supportive elements, regardless of rising metal prices. Unlike what is usually the case with bullish gold markets, low energy prices and falling production costs in local currency mean that mining companies will see their costs fall by 13% to almost $900 an ounce, or over 50% below current gold spot prices.
This increase in profitability has proven to be key to the gold market rallying after the lows hit in March 2020. Furthermore, after mines were closed for much of the second quarter of 2020, with reopening, volumes should return to match the industry’s cyclically high margins and drive the next phase of profit growth in 2021.