Half-way through the first month of 2021, and it has been a rather happening start - from the events that unfolded at the Capitol to the spread of the new strain of the Covid-19 virus. The past few months have been anything but ordinary, as were the consequences.
As noted in the recent Gold Outlook 2021 report by the World Gold Council, gold was one of the best performing major assets of 2020 while also having one of the lowest drawdowns. Early in August, LBMA (London Bullion Market Association) gold price reached a high of USD 2,067.15/oz; for a large part of the second half of 2020, it remained above USD 1,850/oz, and ended the year at USD 1,887.60/oz.
Looking at the demand in the new year, the fact that price for gold has remained relatively stable since mid-August, it may serve as buying opportunities for consumers, despite the lower economic growth expected.
As the report suggests, gold consumption in this part of the world may improve as economic recovery is expected in countries such as China that faced tremendous losses at the start of 2020 before the pandemic could be controlled, and there exists a positive relation between economic growth and Chinese demand.
In India too, the gold market seems to be strong. This is evident from the data exhibited from the Dhanteras festival in November; although jewelry demand was lower than usual, it had improved compared to the second quarter of 2020 when the spread of the pandemic had gained momentum.
But if one were to look at the global scenario - with gold prices at historic high levels and the global economy performing at less than its potential - demand may be constrained in other regions.
Coming to the supply side, production mining faced many interruptions in 2020, particularly in the second quarter when the situation was fairly unfamiliar. Recovery in mine production is expected as fewer stoppages are expected due to development and adherence of protocols and procedures - the new normal.
Like any other commodity, the performance of gold too is based on demand and supply. Some of the factors that influence the demand and supply of gold are economic expansion that supports jewelry, technology, and long-term savings; risk and uncertainty, that is, when market is low, investment demand for gold is generated as a safe haven; opportunity cost- “interest rates and relative currency strength influence investor attitudes”; momentum, that is, “capital flows, positioning and price trends can ignite or dampen gold’s performance”.
The report suggests that investment demand will be well supported based on low interest rates, whereas gold consumption will be generated as economic recovery happens, especially in the emerging markets.
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