Gold investors experienced a turbulent 2020 with the price of the commodity crashing hard and fast during the peak of the Covid-19 selloff. Gold not only rebounded sharply but it also hit a new all-time high and anyone holding gold in January exited 2020 with their precious metal worth more.
So will gold price rise once again in 2021? Let’s take a quick recap of gold’s performance in 2020 and perform a brief gold technical analysis to see what’s around the corner.
2020 recap: a great year
Gold exited 2019 with clear momentum and the first few weeks of 2020 were much of the same. It entered 2020 trading at around $1,520 an ounce and moved higher amid geopolitical conflicts. Rising Middle East tension and the prospect of a full-out regional war involving Iran, the United States and potentially others made the case for gold as a safe-haven asset during difficult times.
But as the prospect of war diminished, investor focus shifted to other events that would impact the global economy. Most notably, the rapid spread of the novel coronavirus around the world had investors fleeing gold – only to run back to the commodity.
The pandemic-induced selloff across nearly every asset class didn’t spare gold. The price of an ounce of gold tumbled to near the $1,450 level. Just as quickly as gold fell, the commodity sharply rebounded. By August the price of gold hit an all-time high of $2,075 although it lost some momentum after the summer months.
Despite the near-term weakness, the multi-year gold price analysis shows a clear upward trend (with very brief selloffs) has been in place since 2018.
Will gold price go up in 2021? Depends on these factors
The historic case for gold prices to move higher is its usefulness as a hedge against inflation. If the cost of living rises, the price of gold usually follows suit. However, inflation hasn’t been much of a concern in 2020 as developed economies showed relatively low and stable levels of inflation.
Most notably, the US Federal Reserve hinted throughout the months that inflation rates are the least of its concerns. But some experts and analysts believe that inflation rates are due for a rebound and investors are more optimistic that a bullish answer to “will gold go up”is the correct position.
Stock prices are also a factor in determining if a gold price increase in 2021 is likely. Major US stock indices soared to all-time highs and equity valuations certainly play a role in any gold price analysis. If investors believe that the gold price 2021 offers a better value versus some stocks that are up hundreds of percentage points then a rotation towards the commodity could be seen.
Perhaps most important, the relationship between gold and the US dollar is a key determinant for future gold price expectation. The two asset classes have shown historically an inverse relationship so when the greenback rises in value, gold prices fall and vice versa.
If the Federal Reserve as part of President-elect Joe Biden’s administration prioritises further quantitative easing, the US dollar will fall even more in value. Just weeks ahead of the transition of power, the US dollar is already trading at a multi-year low versus a basket of foreign currencies. Perhaps the longer-term trend has already been set and gold’s longer-term price appreciation remains intact into 2021.
Key gold levels to watch
The major price levels for investors to keep in mind for their gold analysis 2021 are as follows:
As a reminder, “resistance levels” refers to the price at which an asset starts to face new selling pressure. By contrast, “support levels” are prices at which investors find an asset to be attractive and new buyers could enter the market.
Evaluating a gold trade into 2021
As 2021 is just around the corner, let’s take a look at the 2020 gold chart to see if it offers any clues on how to approach a gold trade.
The chart does show a run higher towards the August highs and then a loss of momentum as gold traded near the $1,760 level in November. But the resilient commodity started to stage a rebound from its multi-month low and recovered around $100 an ounce to trade near the $1,860 level.
The near-term picture does show several instances of weakness since the summer months so perhaps keeping the support levels in mind before entering a trade is a good idea.
Investors should expect the first support level of $1,760 could fail to hold if gold moves sharply lower due to some unforeseen reason. However, the next support level of $1,670 has worked as expected from April to June as gold prices bounced back higher after hitting these levels.
This begs the question: will the price of gold go up? No market moves in a straight line higher for ever so near-term drops are far from unusual. Expectations for gold to retest it's all-time highs in 2021 could be a base-line scenario for many investors and could be realised if a strong break above the $1,900 level is seen.
If you would like to have a clear vision of how to make a trade on the gold market right now, take a closer look at our detailed gold price analysis in a short video by Capital.com market strategist David Jones.
Conclusion: how high can gold go?
Heading into 2021, the price of gold is experiencing a near-term correction yet four months ago it traded at historic highs.
Gold’s charge to all-time highs in August was rather quick and formed a base of strength in June. From June to August, gold gained around $400 an ounce so if a similar pattern forms, a bullish but still optimistic gold price forecast 2021 could be $2,500.
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.