Gold prices have been highly choppy of late amid mixed cues and on the MCX in futures market in India, the prices again slid by 0.66 percent to Rs. 48,997, i.e. now at levels below Rs. 49,000 per 10gm on December 14,2020. This is a huge decline from August all time high price of Rs. 56,200 (International gold prices hit a high of $2075 per ounce).
In the current scenario, factors weighing on the gold price are beginning of the roll out of the coronavirus vaccine in the US which improved risk-sentiment. Also, a delay in the US stimulus is weighing on the gold prices. Global stimulus measures lift gold prices higher.
Now as the prices of gold shall continue to trade in a range and there is not expected any sharp upside in the near term, several analysts already have a bullish bet on the yellow metal for the next year.
Why Bullish Sentiment For Gold in 2021?
Now, that the unprecedented year 2020 which pushed gold prices higher by a huge percentage of almost 22 percent internationally, the momentum is expected to continue on global factors as
1. Quick Economic Turnaround shall be hard to come by soon:
Gold which rallied on economic downturn due to Covid 19 situation is now witnessing optimism around economic recovery globally, but even as the central banks globally are releasing stimulus to help the battered economy, turnaround shall take ample time and during this course, gold will see sufficient upside from here too.
2. No clue on how quickly Covid 19 vaccine will be able to curb this Covid 19 menace:
Though the roll out of Covid 19 vaccine in some of the nations including the US have given hope of quicker relief from the pandemic and in turn faster economic strength, there is still doubt over the timeline and efficacy of these vaccines in preventing or eliminating the disease. And this uncertainty will further push up the price of gold.
3. Gold's appeal as a hedge and investor's faith in the commodity:
Any price correction in the yellow metal shall also be checked by investors' interest and faith in the commodity which is a store of value from ancient times and also serves as a hedge.
Gold can even see a pullback for these reasons in 2021
Now, that we have seen gold gaining splendidly until August 2020 and then cracking which can be partially owed to recent offloading from gold ETFs which on global level has been estimated at $6.8 billion or over 100 tonnes, corpus in gold ETF will also determine the trajectory of gold. And any large sell-off in gold ETFs shall be negative for gold.
Also, bitcoin, the largest cryptocurrency, which is fast gaining as a mainstream investment avenue and is also seen as a ‘safe haven' in economic uncertainty is seen as a threat to gold as some of the money invested in gold may be deployed in cryptos, considering their lucrativeness.
Besides the price of gold may see a pullback owing to investors' reluctance to invest in gold amid economic downturn as they may be taking a cautious stand in their investment decisions.
How to approach (trade or invest) in gold in 2021?
Now as there are mixed cues and 2021 is seen to be a mixed year for gold with gains in the first half and fall in the second half plus there are indications that net position in gold has now receded to 15-month low, investors need to take to a disciplined approach when investing in gold.
And while an upside is seen for gold further, this year's extraordinary rally shall be hard to come by in the next year, and analyst from Refinitiv Metals suggest that the current gold ETF levels at over 3700 tonnes are alarming and any positive news on economic recovery may fuel sharp sell-off Gold ETF holdings, which may result in price correction of gold.
So, a cautious stance is highly called for when investing in gold and one should strictly restrain from chasing any price and in fact can take positions when the metal sufficiently corrects from the current levels.