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Expect Subdued Gold Market In 2021, CPM Says

Don’t bet that the 2020 gold market boom will repeat this year. It likely won’t, new research shows.

Expect something less than the phenomenal rally seen during the height of the pandemic, according to new research from New York-based commodities research company CPM Group.

“This year the gains in prices are expected to be more subdued relative to last year,” the CPM report states.

The price of bullion jumped 40% from a low of $1,472 a troy ounce in February 2020 to a high of $2,067 in August, according to data from the London Bullion Market Association. The SPDR Gold Shares (GLD) exchange-traded fund, which holds bars of solid bullion, performed similarly.

Bullion was recently fetching around $1,736.

Investor Demand for Bullion Remains Key

Two factors stand out in the research report that support that view.

Still investor demand is likely to remain elevated. CPM estimates that global investment demand totaled 44.5 million ounce in 2020 but the company projects that will fall to 42.8 million this year.

Investment demand is key to elevated and rising prices. Demand for gold jewelry tends to be inversely related to prices. So the likely high level of investment demand should be supportive of prices.

However, the behavior of gold investors is likely to be different in 2021 than it was last year. Investors chased prices higher in 2020 they will more likely buy bullion when the price dips in 2021, the report says.

  • “Last year investors were chasing the price of gold higher as they amassed large volumes of gold. This year they are expected to buy gold but wait for prices to soften on temporary dips be- fore they step in as big buyers.”

The likely result is that the price for gold will likely have a hard time staging a sharp rally.

However, the report cautions that if investors don’t snap up as much metal as expected then prices could take a dive, at least temporary. The report sums it up:

  • “Should the pace of investor demand for gold cool over the course of 2021, prices might soften, at least some- what, for a time. They are projected to remain at higher prices than those seen before 2020.”

Central Banks Set to Remain Active in Gold Market

Meanwhile, central banks are set to add around another seven million ounces in 2021, or similar to the level last year. Central banks tend to be opportunistic and price sensitive when adding precious metals to their reserves.

At least part of the demand from central banks is due to a desire to ditch part of their U.S. dollar holdings.

  • “[…] many central banks, especially in developing coun- tries continue to want to diversify their assets away from the U.S. dollar and euro and are likely to continue adding to their holdings in the foreseeable future.”

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