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LAWRIE WILLIAMS: Year end gold roundup – better levels to come

Year end gold roundup – better levels to come

At the beginning of the year we were predicting around a 10% gold price increase in U.S. dollars over the year, and then the COVID-19 virus pandemic arrived and the end result saw the gold price rise by around 36% by early August, before a relatively sharp correction set in.  Even so, gold ended the full year up around 22% since January 1st, rather less than we were predicting once the virus impact began, but an impressive performance overall.

As we approach the New Year, gold has been making another run at the $1,900 barrier (and found wanting again) ending the year just below that level at $1,898.  With COVID-19 infection rates in the world’s major economies showing little sign of slowing down – indeed they appear to be increasing again - despite the much-vaunted vaccine roll-outs, we suspect the economic effects of the virus will likely get worse before they begin to get betterand that gold will quickly retake the $1,900 level and move higher still.  The global virus related death toll is put at over 1.8 million people, but in reality is almost certainly far higher – yet virus-deniers are still prevalent in some parts of the world, and particularly among the Trump supporters in the U.S.

In our view, the fact that the economic impact of the virus may yet become greater will at last get through to the investing public and safe havens like gold will thus benefit, and equities fall.  However we made the same assumption back in March, yet equities proved to be pretty well unaffected – indeed U.S. stock indices rose despite the worst economic turndown since the Great Depression, while gold did benefit, but not nearly as much as we had anticipated.  So much for forecasts in the face of apparently unbridled optimism from the investment public.

There is already evidence of virus mutations which make it more transmissible, and despite moves from many countries to shut down travel from the UK, where the new mutation is said to be the most prevalent form and where the variant’s figures are highest to date, recent virus spread history suggests such moves will not be successful in controlling its global spread.  A more transmissible virus is particularly bad news for nations like the U.S., where some initial cases have already been noted, given much of the population seems to be resistant to taking basic anti-virus precautions.  Social media-spread ‘conspiracy theories’ about the epidemic will, in retrospect, almost certainly be seen as hugely damaging in helping exacerbate the spread of the virus.  At least that is our opinion.

We would thus not be too surprised to see a huge spike in U.S. infections and deaths, already the world’s worst, in the weeks and months ahead.  The latest figures out of the U.S. have already highlighted the worst daily COVID-related death toll yet – well over 3,000 deaths and Dr. Anthony Fauci, the U.S.’s top infectious disease expert and part of the White House coronavirus task force, has warned that the worst is yet to come!  While a vaccine rollout may help stem the tide, we fear it will come too late to have any significant impact for many months yet.

We recently published our precious metals and equity index price forecasts for 6 months and the full year ahead.  We were of the opinion that 2021 will be a year of two distinct halves with the virus continuing to run rampant in the first half of the year, but showing signs of being brought under control in the second half as vaccines begin to have an impact in slowing the spread down – assuming they work as well as initial trials suggest.  Our forecasts are set out in the table below with the first column updated to show the latest year end figures

Table:  Price and index predictions for end-June and end-December 2021.

 

Current (US$)

June 30 2021 (Est)

Dec 31 2021 (Est)

Gold Price

$1,898

$2,150

$2,225

Silver Price

$26.36

$31

$32.25

Platinum Price

$1,061

$1,250

$1,285

Palladium Price

$2,336

$2,340

$2,175

DJIA

30,606

29,000

27,500

S&P 500

3,756

3,300

3,100

FTSE 100

6,461

6,500

6,250

DAX

13,719

14,200

13.500

Nikkei

27,444

26,000

26,000

US Dollar Index

89.94

88

88

Should our worst fears on the virus spread and the economic impact come about, or underestimate reality, then our gold and silver price forecasts may well prove to be quite conservative – although platinum and palladium prices being more dependent on industrial demand may not benefit to the same extent.  By rights global equities should come back further than suggested but they held up well in 2020 – better than was justified by the worldwide economic downturn resulting from virus control measures.

To sum up we are confident of a decent annual increase in gold and silver prices in 2021, less so on the pgms and mildly negative on equities markets, but never underestimate the optimistic perceptions of the investment public as far as the latter are concerned!

01 Jan 2021 | Categories: Gold

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