Gold Price Analysis: The outlook is still positive but three major concerns loom – ABN Amro

Gold (XAU/USD) set a new high at $2,075 this year and despite a downward correction from those levels are still up by 21% year-to-date. Strategists at ABN Amro still expect gold to rise in 2021 on lower US real yields and a weaker dollar. The caveat is that long gold is still a crowded trade, the technical picture is deteriorating and normal relationships may not work as they usually do. All in all, the year-end 2021 forecast stands at $2,000 per ounce.

See – Gold Price Analysis: Stimulative policies to drive XAU/USD above $2,000 – TDS

Key quotes

“The outlook for gold prices is still positive. First, we expect the Fed to keep policy rates low in the coming years. The Fed will also limit the rise in US treasury yields to support the economy. In fact, we expect lower US Treasury yields for 2021. If inflation expectations stay around the current level, lower US Treasury yields will result in lower US real yields. This is a clear negative for the dollar and a positive for gold prices. Second, in 2020 fiscal deficits have risen substantially. In 2021 these deficits as % of GDP will decline but they will remain substantial. It is likely that the combination of monetary stimulus and large fiscal deficit will continue to be a concern for investors. So we expect higher gold prices versus the US dollar-based on these dynamics.” 

“The total ETF positions are still huge. Since the peak on 15 October, they have declined by only 4%. These positions are still 28% higher than at the start of the year and 29% higher than the former peak of 20 December 2012. In short, gold is still a crowded trade and investors are doubting. In 2013 a liquidation of 36% of the total outstanding ETF positions resulted in a decline in gold prices of 30%. These positions remain a risk.”

“The technical picture has been deteriorating recently. Prices are holding above the 200-day moving average ($1,810 per ounce). The market has already tested this level, but prices moved above again. If there is a substantial move below the 200-day moving average, the uptrend is over in our view. By substantial we mean in normal trading conditions with a weekly close below the 200-day moving average. In the coming weeks, trading conditions are far from normal as the market is very thin at the end of the year and at the start of the new year.”

“With the arrival of the vaccine the economic outlook is improving. Gold prices have the tendency to weaken if an economic recovery goes hand in hand with expectations of tighter monetary policy and higher rates. But gold prices have the tendency to rise if the economy recovers but monetary stimulus remains in place and US real yields decline. This is also our base case. But we are in an exceptional environment where normal relationships are challenged. This could also be the case for this relationship.”