Gold has broken out of the downward trend since April 2021 and is on the way to retest the previous high. Factors that could drive gold prices higher include: 1) Negative real yields 2) Recovery in utility demand and 3) Gold remains a good hedge in uncertain times and provides a good alternative to diversify asset portfolio, analysts at DBS Bank report.
XAU/USD to trade at $2,000/oz by year-end 2021
Negative real yields could deliver boost to gold
“The US Treasury Inflation-Protected Security (TIPS), which is a US Treasury bond with interest payments pegged to inflation, is still locked in the negative yield territory. Negative real yields indicate a loss on guaranteed capital and hence makes gold a more attractive asset class as a form of investment given that gold bears no interest rates.”
Diverse users for gold; expect demand to pick up
“Gold has diverse uses, in jewellery, technology, by central banks and as a form of investment. We expect demand from these three segments to pick up in 2021 given the economic recovery and rising income which is often associated with higher demand for jewellery, technology, and long-term savings. The three segments combined represent more than 90% of total gold demand.”
Gold is still a good hedge in uncertain times despite forecast downgrade
“We revised down the year-end 2021 gold forecast to $2,000/oz, in view of the higher bond yield forecast and the delayed timing for the peaking of USD by one quarter. Despite the downward revision in gold, the yellow metal remains a good hedge in uncertain times, and is a good diversification strategy to reduce asset volatility.”
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