SINGAPORE: Gold is starting the new year with the biggest annual advance in a decade after a tumultuous 2020, with gains in December aided by the dollar’s decline to the lowest level since April 2018. Silver has surged almost 50% last year.
Bullion hit a record last August as investors sought haven assets amid the pandemic. The surge was buttressed by unprecedented waves of stimulus, including from the Federal Reserve, which fanned concerns of currency debasement.
Holdings in bullion-backed exchange-traded funds set an all-time high last October, although they have since ebbed with the roll-out of vaccines.
Gold, which doesn’t typically offer interest, has benefited as the US central bank cut interest rates to near zero and bought billions of dollars of bonds every month.
That has helped to drive real interest rates – which reflect expectations for inflation – well below zero. Led by Chair Jerome Powell, the Fed has signaled that its ultra-easy policy will last throughout 2021.
“Gold’s main drivers – weaker US dollar and low real interest rates – are likely to provide support” even as vaccines are distributed around the world, said Vasu Menon, executive director for investment strategy, at Singapore-based Oversea-Chinese Banking Corp.
With the lower-for-longer Fed, “it is too early to throw in the towel on gold, ” he said in an email.
Bullion for immediate delivery was 0.3% lower at US$1,888.99 an ounce at 12:55pm in Singapore yesterday. That’s up 6.3% on Dec 31,2020, and 24.5% higher over 2020, poised for the biggest full-year advance since 2010. The Bloomberg Dollar Spot Index is heading for a third, straight quarterly loss.
Looking forward to this new year, some banks have signaled that the traditional haven may now struggle to extend its gains. Gold and other precious metals will likely come under pressure in 2021 as financial markets normalise and the yield curve steepens, Morgan Stanley said in a note in December 2020.
Others have struck a more positive tone. While bullion’s rally has been blunted by vaccine progress, there is still support from monetary and fiscal policies, according to HSBC Securities (USA) Inc.
A Joe Biden administration may be gold-positive from a fiscal-spending perspective, it said in a Dec 9 note. — Agencies