Nicole WillingGold and silver markets have been especially volatile this year, dropping sharply in March as the Covid-19 pandemic spread and then skyrocketing to multi-year highs in August right before slipping back in September.
What is the gold and silver outlook? Are prices set to resume the rally, or has the opportunity to invest in the metals passed?
Our gold and silver analysis looks at what has been driving the volatility and analyst forecasts for the metals going into 2021.
Flight to safety drives gold and silver markets
The gold price reached an all-time high of $2,069 per ounce on August 6, rising by 35 per cent since the start of 2020 and 40 per cent from the March lows. After the initial reaction to the spread of the Covid-19 pandemic, when investors sold off assets across the board, gold has become an increasingly attractive investment as low interest rates and unprecedented economic stimulus have driven safe-haven demand for the metal as a store of value.
Gold and silver prices charts show that the gold and silver ratio – the number of ounces of silver needed to buy one ounce of gold – climbed above 114 in April as the silver market lagged gold, but the ratio dropped towards 68 in August as gains in the white metal accelerated relative to gold.
Silver started the year just under $18 per ounce and climbed by 63 per cent to more than $29 in August – its highest level since early 2013. The silver price came under pressure in the spring as industrial demand fell with the closure of manufacturing plants during lockdowns to slow the spread of the pandemic. Unlike gold, the majority of silver demand comes from its physical use in industrial products. However, the price jumped in July in response to renewed buying interest from retail investors priced out of the gold market, analysts said. The white metal recorded its largest monthly price gain in July since 1979, rising by $5.58 per ounce or 29.9 per cent.
Investment demand has outweighed consumer demand for both gold and silver, as jewellery sales in the first half of this year slumped by 46 per cent from the first half of 2019 because consumers were in lockdown and disposable income was reduced by job losses.
Precious metal prices fell back in August as the US dollar strengthened and the US government failed to agree on a fresh round of economic stimulus. However, analysts expect the macroeconomic environment to support further gains in gold and silver.
Gold and silver price forecast: rally to resume, lifting prices into 2021
So, what is the outlook for gold and silver future prices? Analysts point to continued economic uncertainty and signals from central banks that they will tolerate higher inflation as likely to push metals higher.
In a recent note on gold, an analyst at Danish investment bank Saxo said: “There is a clear argument that most portfolios should have a position in this versatile and multi-faceted commodity. It is more than just a defensive play or store of wealth, it is an active investment in the face of significant inflationary pressures and macro and political uncertainty. It is a hedge against Central Bank monetisation of the market. I would discourage the view that an investment in gold at this time is consensus and late. Now is not the time to overthink what is a classic thematic investment.”
Ole Hansen, the head of commodity strategy at Saxo, commented: “We maintain a positive outlook for gold, and while we may not see any significant near-term developments in real yields and inflation, the uncertainty ahead of the November US presidential election should be enough to dissuade anyone from taking profit before our expectations for a weaker dollar and lower real yields eventually may take prices higher into 2021.”
In their latest gold price update, analysts at Citibank (C) said that they are bullish on the metal tactically in the short term and structurally over the medium term. They maintain their 0-3 month price target at $2,200 per ounce and a six-to-12 month target at $2,400 per ounce. They have lifted the 2021 estimated base case gold price forecast by around $300 per ounce from an early July update, to a record $2,275 per ounce.
“A higher gold price, along with the ongoing recovery in industrial demand, particularly from China, means that the price of silver is likely to rise in the year ahead,” analysts at Capital Economics wrote in a recent gold and silver forecast note. “All in all, a market deficit in conjunction with a higher gold price should lift the price of silver to $25 and $27 per ounce by end-2020 and end-2021, respectively. Demand for non-interest bearing safe-haven assets, such as gold and silver, should rise as real yields in the US drift a little lower.”
In their latest gold and silver price prediction, analysts at Australian bank ANZ expect prices for the metals to rise into 2021, peaking in March.
Analysts at ABN AMRO issued a gold and silver prediction at the end of September that puts gold at $2,000 per ounce at the end of 2021, up from 1,900 at the end of 2020, and silver at $22 per ounce, up from $20 per ounce.
In the meantime, analysts at Heraeus Precious Metals also gave their own gold and silver prices forecast back in September: “Despite weak consumer demand, strong investor demand is likely to continue to provide support for gold. A great deal of political and economic uncertainty is already priced in. However, the pandemic is far from over, and if the economic outlook worsens, central banks could increase their monetary interventions yet again.”
The Heraeus analysts added: “With the economic outlook still uncertain, further stimulus measures by governments or central banks could keep investors interested in silver. The price is anticipated to trade within a range of $22.5 per ounce and $35 per ounce for the remainder of the year.”
WalletInvestor.com predicts gold prices to rise to $2,098 per ounce at the end of 2021, up from $1,892 in December 2020, rising to $2,926 per ounce by September 2025. According to the service, silver prices are also set to hike higher, up to $24.37 per ounce in December 2021 from $23.44 in December 2020, surging to $29.38 per ounce by September 2025.
What is your gold and silver prediction? Whether you expect prices to rise further or pull back, you can trade these precious metals in both directions using contracts for difference (CFDs) at Capital.com. Trading CFDs allows investors to try to benefit from any price fluctuation, either up or down, by taking a long or short position, respectively.
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However, note that CFDs are a leveraged product. Therefore profits, as well as losses, are magnified.
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