Gold, Silver Prices Ride Stimulus Tailwinds into New Year

Gold and silver prices entered the final week of 2020 edging higher, with both metals receiving support from US President Donald Trump’s signing of a coronavirus relief bill.

Trump had initially refused to okay the bill, saying that the US$600 allocated for citizens needed to be topped up to US$2,000; although the bill wasn’t adjusted, he signed it into law on Sunday (December 27).

Conversations have continued around increasing the payments to US$2,000, and prices for gold and silver have stayed elevated. Gold was trading just under US$1,900 per ounce at the end of the day on Thursday (December 31), while silver was at about US$26.40 per ounce.

Both metals have had stellar performances in 2020, with gold adding about 21 percent to its value-year-to-date and silver seeing a price increase of around 45 percent over the course of the year.

The precious metals did see drops in March, when global markets reacted swiftly and negatively to COVID-19 restrictions. Gold and silver sunk to US$1,498 and US$11.94, respectively, at that time.

A strong rebound off investor sentiment pushed gold to a record high by August, and for its part silver rallied to a seven year high.

Where gold could go in 2021

Looking back on 2020, FocusEconomics economist Steven Burke explained that the precious metal’s price growth was closely tied to the global reaction to COVID-19.

“The pandemic invoked unprecedented economic uncertainty, which led to a surge in safe-haven demand and, in turn, boosted gold prices,” Burke told the Investing News Network. He anticipates that prices for the yellow metal will be rangebound into 2021.

“On the one hand, the global economy is expected to rebound robustly as the impact of the pandemic and subsequent lockdown measures fade,” he said. “Positive news on the COVID-19 vaccine front in recent weeks should be further raising economic prospects for H2 2021, and will likely continue to support investors’ appetite for risk ahead, boding poorly for safe haven demand and gold prices.”

These factors may impede gold’s trajectory. However, the economist did note that vaccine rollout disruptions or a second strain could also be price catalysts.

Aside from the health crisis, there are US fiscal measures like stimulus that will work as tailwinds for a higher gold price, he explained. “A (Joe) Biden administration is expected to bring about stronger public spending, which is projected to boost US domestic demand and economic growth — more than was anticipated under a Trump second term,” said Burke.

“This should fuel inflationary pressures, coupled with the (US Federal Reserve) committing to keep its ultra-accommodative monetary stance in place until at least 2023. Higher inflationary pressures, a deeper fiscal deficit and a weaker USD should support gold prices.”

Next year’s silver demand picture

As for silver, the white metal was unable to break its previous 2011 price high of US$47.94, but was still able to outperform gold. The dual metal rose as much as 147 percent from its March low of US$11.94 to its August high of US$29.85.

Jeffrey Christian of CPM Group explained what drove silver’s dip and rally.

“Initially, (there was a) reduction in fabrication demand, a wave of investor selling of gold and silver to raise cash and credit and physical constraints in the London and New York silver markets,” he said. “The lower fabrication demand was partly offset by lower mined and refined silver production. As the year progressed, investment demand rose sharply, boosting prices.”

In fact, demand for silver exchange-traded products drove global holdings to more than a billion ounces for the first time. Physical silver investment climbed 27 percent in 2020 to a five year high as well.

Christian expects the increase in demand for the white metal to slip slightly in 2021, but anticipates that it will hold above levels seen from 2017 to 2019.

“COVID-19 and its economic consequences will have a major impact on the global economy (and) capital formation, and thus demand for silver-bearing products for the next year or two,” he said. “Beyond that, there will be other global issues that will exert greater effects on silver markets and prices, as the virus is brought under control and the world learns to live with it.”

Market uncertainty good sign for precious metals

Both Burke and Christian pointed to factors that investors should keep an eye on in 2021.

For gold, foreign trade policies, geopolitical tensions and the direction of the US dollar are key factors that investors should be aware of in 2021, apart from the evolution of the pandemic.

“China has faced significant backlash over the past two years from developed economies for its anti-competitive practices when it comes to international trade,” said Burke. He went on to note that these practices have caused trade rifts with several countries, the most recent being Australia.

“Any escalation or de-escalation of foreign trade relations will likely determine demand for safe-haven assets such as gold and the direction of price movements,” he said.

Burke also said the UK’s delayed departure from the European Union could impact gold.

“Lastly, a weaker US dollar as investors seek opportunities in emerging markets amid ultra-accommodative monetary and fiscal global stimulus levels and higher domestic inflationary pressures should support gold prices,” said the economist. “However, a shift in investor sentiment or the trajectory of price pressures could be a headwind on gold price growth.”

Looking at silver, mined supply is expected to decline by 6.3 percent year-on-year. However, Christian sees total silver supply climbing back in 2021.

“CPM expects that total supply of silver will rebound in 2021 and exceed 2019 levels. The increase primarily will be from refining old scrap metal,” he said. “Mine production will recover from 2020 levels, but not as strongly. Fabrication demand is projected to recovery some from 2020, but not to reach the levels in 2019.” Overall, his firm sees silver moving higher in 2021.

“We expect prices to rise around 29 percent on an annual average basis, primarily reflecting continued investor interest in precious metals as portfolio diversifiers.”

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.