Gold will soon regain its shine

With the gold price down by 9.5% in the first quarter of 2021, it has been a rotten start to the year for gold.

It has been a rotten start to the year for gold, says Joe Wallace in The Wall Street Journal. The gold price fell by 9.5% in the first quarter. You could have done worse, but you would have needed to buy “Turkey’s lira” or “US government bonds”. Prices peaked at $2,069/oz last August, but have slid ever since. Gold was trading around $1,745/oz this week. A US recovery reduces gold’s appeal as a safe haven, while higher bond yields also lower demand as gold offers no income. 

Gold’s falls follow two years of excellent performance, says Emily Gosden in The Times. It rose by 18% in 2019 and 25% last year. This setback might not last. James Steel of HSBC notes that demand for physical gold dropped to an 11-year low in 2020 as the pandemic closed stores. This year should bring renewed demand for jewellery, with Indian and Chinese shoppers leading the way. Retail investors’ interest remains solid, reports Andrew Dickey of The Royal Mint. Covid-19 has delivered “greater awareness around investing in precious metals”, with gold fans adopting a buy-the-dip attitude to the latest setback. 

Hedge funds have cut their exposure to “a near two-year low”, says Ole Hansen of Saxo Bank. The case for gold depends on inflation, which could start to surprise on the upside later this year. That could force big institutional buyers back into the market. Hansen thinks the metal could yet reach $2,000/oz in 2021.

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