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Will gold price reach the $2000 level again as investors return?


The recent stock market slide and the growing consensus that inflation is here to stay means that we are seeing a resurgence in the price of gold.

Despite Q1 of this year seeing a 10% decrease in prices – the average gold price was around $1,700 – and gold-backed ETFs experiencing US$9.5 billion in outflows according to the World Gold Council’s (WGC) latest Gold Demand Trends report, the yellow metal could return to the $2,000 mark again this year.

A few months on and gold ETFs are back in favour. With the prospect of global economic recovery stalling, institutional investors have started buying again; there has been a 13% gain in the last six weeks alone. The gold price is at a four-month high and at time of writing, it is hovering around $1,880 per ounce.

Nitesh Shah, Director, WisdomTree Research commented “Gold has shaken off a weak first quarter in 2021 and is recovering strongly in the second quarter. Upside inflation surprises have supported gold in recent weeks. US inflation expectations based on 10 year breakevens are at the highest level since 2013 and realised US inflation is at the highest level since 2008. Gold’s role as a defensive hedge (i.e. justification for a strategic role in a portfolio) was illustrated last week, when a number of cyclical assets (including crypto-currencies and equities) were faltering, while gold posted gains. While in Q1 2021, tactical interest in gold was paring (net speculative positioning in gold futures were declining), net long positioning in gold futures have been rising for the past three consecutive weeks.”

Demand for physical gold at the retail level is strong too, and has been throughout this year. In Q1, the opportunity to buy at lower prices, relative to the highs seen last year, boosted consumer demand for physical gold and retail gold purchases. The WGC report found that retail purchases and jewellery saw a 36% increase year-on-year for retail gold purchases, largely influenced by price-driven bargain-hunting. Meanwhile the value of gold jewellery purchased by consumers enjoyed a post-Covid rebound, rose to 477.4t – a 52% annual increase.

Outlook for gold in 2021

According to Ross Norman, CEO Metals Daily, “ETF demand, which is a good proxy for institutional interest in gold, was the highest in the first six months of last year compared to any previous full year. The outlook for gold in 2021 is good but not great. After two cracking years for gold, 2021 will not be quite as strong as 2019 and 2020. In 2019 gold was up 19% and in 2020 it was up another 25% with most of those gains in the first half of the year. Before the end of this year, I can see us testing $2,000 again. ETF demand which is a good proxy for institutional interest in gold was the highest in the first 6 months of last year compared to any previous full year.”

Twelve of the 32 analysts interviewed at the beginning of this year for the London Bullion Market Association’s (LBMA) annual precious metals forecast competition have also predicted that gold will average $2,000 or more across 2021.

“The reason most people would be looking at it right now is in the expectation that we could be seeing a 1970s style double digit inflationary moment and while central banks control many things and indeed, we have a deeply distorted market, they can’t control inflation” states Norman.

Gold mining shares also responding to the bullish atmosphere

As demand is forecast to grow further, we are seeing a potential upswing in the gold mining sector too. Overall gold production is expected to increase by 5.5% this year to 113.9 million ounces and to 124.1 million ounces by 2024 – a 2.9% compound annual growth rate (CAGR), according to GlobalData.

Barrick Gold Corporation (NYSE:GOLD)(TSX:ABX) has seen its shares jump. Since its low of $18.67 in late February, the Barrick share price is now $24.70. Although with a 52-week high of $31.22, there is still some way to go. The junior exploration miner recently reported preliminary Q1 production of 1.10 million ounces of gold. This was lower than Q4 2020 mainly due to mine sequencing at Carlin and Cortez as well as lower grades at Pueblo Viejo. However, the company’s gold production in the second half of 2021 is expected to be higher than the first half.

Production results for Kirkland Lake Gold Ltd. (NYSE:KL) (TSX:KL) for Q1 2021 were 302,847 ounces, which exceeded guidance for the quarter of 270,000 – 290,000 ounces. Shares in Kirkland are up 26% from the end of February, now at $52.52.

Here’s a sample of available Gold ETFs

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Core Physical Gold
Hargreaves Lansdown | Interactive Investor | EQi
WisdomTree Physical Gold – GBP Daily Hedged
Hargreaves Lansdown | Interactive Investor | EQi
WisdomTree Gold 1x Daily Short
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Gold 2x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | EQi
WisdomTree Gold 3x Daily Leveraged
Hargreaves Lansdown | Interactive Investor | EQi
WisdomTree Gold 3x Daily Short
Hargreaves Lansdown | Interactive Investor | EQi

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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