Gold futures ended around 25% higher last year with the majority of the increases happening from March 16 to August 7 when governments and central banks were announcing and starting large-scale stimulus plans. But since that high, gold has had a hard time as the economy emerged from recession and officials started to better understand the financial crisis.
In flooding the economy with dollars, officials followed the playbook from the 2007-2008 housing crisis, which at that time, helped bailout the world economy. This strategy seems to be working so far.
The Fed gave dollars away to anyone and gold shot up accordingly since most investors followed the belief that a “weak dollar means strong gold.” But gold began to lose momentum when governments started to see an end to the crisis.
In early August, they began to believe their policies were working and that the money faucet could start to be closed. They continued telling banks and investors that they would again make aggressive moves if needed, but mostly they would keep policy normalized with a few changes if needed.
Once the American election was over and the Covid vaccines were made official, those dollars had to move somewhere. But they didn’t go to gold. People came out of gold and went into higher-yielding things like stocks. Currencies from commodity-producing nations also won big as assets like palladium, copper, platinum and silver increased.
What traders and investors discovered last year, and what will probably continue as we move into 2021, is that gold is an investment. It’s not necessarily a safe-haven asset like some brokers claim. Gold is competing for the same money that is going into bonds, stocks and higher-yielding currencies like the New Zealand and Australian Dollar.
With gold as an investment, you should search for where it has real value. Last year, it rallied at $1461.70 and stopped at $2099.20. By November 30, gold had lost 15.82% of its previous gains. Reaching a number of $1767.20, which was slightly under 50% of its total 2020 rally.
Now, starting 2021, investor response to 50% to 61.8% of 2020’s range at $1780.50 to $1705.20 will set the consensus for this year, at least on a technical level.
The fundamental data is even harder to understand if you keep up with the news. Covid deaths continue to increase and gold has gone nowhere, so I assume it’s ok to remove safe-haven buying as a reason to buy gold.
The dollar currently is trading at a 2-1/2 year low against other major currencies so it seems its connection to gold is skewed. Otherwise, its price would be rising this year.
Until cash starts to go back into gold, traders and investors will continue pushing investments like silver, stocks, other currencies and of course Bitcoin even higher. This is due to gold being too expensive in comparison, which ruins its appeal as an investment. Another negative is that it doesn’t pay a dividend or interest.
Gold will probably continue to be well-founded in 2021 due to the Fed’s stimulus policies, but it will suffer if it’s forced to compete with other assets. There will be a reset some point during the year. Investors will then transfer their money out of assets that have made huge gains. It’s then that gold will likely grow, but until that happens, we could be see a rangebound trade.