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Gold price prediction For 2021| What experts think

Mon Sep 06 2021 18:17
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The price of an asset is crucial when it comes to investment. It's a great influence on the profitability of a financial instrument. Therefore, as an investor, you should pay attention to the price trend of a financial instrument. 

Gold is one such asset, Gold remains one of the most attractive investments on the market. Although its price fluctuates over time, it remains a stable instrument that attracts more investors from time to time. Investors use it to diversify risk. Both beginners and experts in gold as an investment need to pay attention to prices. 

Investors work with forecasts to make their investment decisions. This article is about gold price forecasts for the rest of 2021 and related discussions like the determinants of gold prices. Read on to find out the predictions that will help you in your gold investment decision.

Gold price

Gold has been around for a long time and has been used as money throughout history. As gold is a relative standard for currency in most economies, it remains a valuable asset in the world of investment. 

Most countries in Europe used gold standards in the 19th century until they temporarily suspended them due to the financial crises during the First World War. After World War I II there were various activities in the financial world, such as pegging gold to the US dollar, until they switched to fiat currencies. 

 Since 1919, the London gold fixing rate has been the common benchmark for the price of gold. Gold is traded daily around the world based on economic conditions such as the intraday spot price. It's an attractive investment that every investor should consider as a risk hedging strategy.

Gold price prediction for 2021 according to experts

Around May 2021, investors from China showed great interest in gold as there was a high demand for gold at the start of the wedding and holiday season. The rise of the Covid 19 pandemic disrupted buying in India, one of the largest global markets

According to an analyst at Canadian bank TD securities, a stagnant price below $1800 per ounce signals a lack of motivation to buy the precious metal.

On the gold price forecast, the vice-president of research at Motilal Oswal, Amit Sajeja, said the gold price is in a consolidation phase and this trend is expected to continue for a few more months until the precious metal trades in a range of $646 to $662 per 10g. 

Amit also advised gold investors to watch any correction closely and use it as a buying opportunity as the gold price seems to be positive in the medium term. In the medium term, the price could even rise to $682 per 10g.

Other analysts at the Australian bank believe that the upward trend in the gold price is likely to be limited by rising risk assets and yields. According to their forecast, the value of the metal will rise to $2000 per ounce by September and probably fall back to $1900 towards the end of 2021. There will be a further decline to $1800 by mid-2022. 

Citibank analysts seemed to agree with the Australian analysts' predictions when they noted that the gold price fell below their technical support, $1750 to $1765 per ounce. It also fell below their year-end target of $1700 per ounce before recovering.  

According to the gold price forecast, the gold price is likely to rise, but not more than $2000 per ounce. Several factors may be responsible for this, including:
  • Weakening of the US currency as well as an increase in inflationary expectations resulting from generous fiscal and monetary incentives.
  • Government debt won’t play the role of defensive assets despite high inflation and negative interest rates as they will stop generating income.
  • An increase in demand for investment and the gradual recovery of investors from China and India will positively impact the price of gold.
Similarly, the opportunity cost of owning gold is falling, making gold more popular with investors in 2021. These are all positive indicators for the expected gold price in the future, even if it's not a huge increase; it's a good sign.

Determinants of gold price

The price of gold is influenced by several factors, including demand, supply and investor behaviour. This seems straightforward, but sometimes the factors work in a counterintuitive way. 

For example, most investors view gold as a hedge against inflation. This makes sense because unlike paper money, which loses value the more it's printed, the supply of gold is constant. Gold mining reduces the supply of gold every year, so what really moves the price of gold?

1. Central banks

Central banks have a major influence on the price of gold. In times when foreign exchange reserves are massive and the economy is booming, the central bank may want to reduce its gold holdings because the precious metal is a dead commodity. Unlike money or bonds in savings accounts, it doesn't yield a return.

The problem with central banks, however, is that they're always on the wrong side of the trade. Although they're expected to sell the gold as needed, the price of gold will fall.

2. Exchange-traded funds

Exchange-traded funds (ETFs) allow investors to trade gold without buying mining stocks. ETFs trade stocks and measure holdings in ounces. However, they're designed to track the price of gold, not move it.  

3. Retaining value

The best thing about gold is that it retains its value. Even if its purchasing power is constant, that's nothing to do with its current price.  

4. Portfolio considerations

Most investors invest in gold as a risk diversification strategy. The rules of portfolio management also apply to gold. The amount of gold an investor owns should fluctuate with the price. 

For example, if one wants 2% of one's portfolio in gold, it's logical to sell when prices rise and buy when they fall.

5. Supply factors

Unlike coffee and oil, we don't consume gold. Almost all the gold that was mined in the past is still there and more is being mined every day. So you might expect the price of gold to go down over time, but it doesn't, even if more is mined.

Apart from the increase in the number of people who want to buy gold, investment and jewellery offer some clues. The gold ends up sored somewhere.

Though some countries like China and India take gold as a store of value, those who buy it rarely trade it. Very few pay for something with gold. Instead, the demand for jewellery goes up and falls as the price of gold fluctuate. As prices go up, demand falls relative to investor demand.

6. Gold price correlation to inflation

According to several studies, gold doesn't correlate well with inflation. Simply put, if there's high inflation, it doesn't necessarily mean that gold is a good bet. 

And if inflation doesn't drive the price of gold, what does? 

Gold has positive price elasticity, which means its price goes up when more people buy it. There are forces that influence the supply of gold in the market because it's a global commodity.

The value of gold is expected to rise for the rest of 2021 and most likely until mid-2022. This depends on a number of factors, including the price factors mentioned above. As a rational investor, it would be wise to take advantage of the forecasts and buy now to sell when prices rise. You could make a fortune in a few months, so act now to make more in the future.
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