Arkadiusz Sieron | Jan 08, 2021 12:26PM ET
Was the past year good for the yellow metal? What happened in 2020 and what will 2021 be like for the gold market?
Nobody great lockdown . Indeed, it’s good that 2020 is over – and we hope that 2021 will be much better!
And what did 2020 mean for gold? Well, it turned out that last year was gracious to the yellow metal. As the chart below shows, gold entered 2020 with a price of $1,515 per ounce, and finished the year at $1,888 (London P.M. Fix as of Dec. 30). It means that the shiny metal rose more than 24% – that’s not bad considering other assets were hit really hard during the economic crisis !
Actually, 2020 was definitely better for gold prices than 2019, when the yellow metal gained “only” over 18%. As I didn’t predict the global Gold Market Overview , I wrote:
Unless anything ugly happens, the macroeconomic environment could be less supportive for gold than in 2019. However, bad things do happen and, according to Murphy’s Law, anything that can go wrong will go wrong. Hence, the gold fundamentals may turn out to be more positive for gold over the year. After all, the yield curve has inverted last year and we are already observing some recessionary trends, especially in the manufacturing sector and among the small-sized companies (…) given the amount of flying just above the market surface, gold might provide us with some bullish surprises as well.
And indeed, the black swan (or perhaps a white or grey swan) landed in 2020, pleasing the gold bulls. However, despite gold’s impressive performance, some people complain that gold didn’t rally more during the coronavirus turmoil. I completely understand this disappointment – after all, the world suffered its deepest economic downturn since the Great Recession , and gold gained only 24.6%?
However, the crisis was deep but very short, as we quickly learned how to live with the virus, while our brilliant scientists swiftly developed vaccines. Moreover, this time banks were resilient and there was no financial crisis . Another factor is that gold actually rallied more than 36 percent until its peak in August (or more than 40% counting from the bottom), but it later corrected somewhat.
Indeed, we can distinguish a few phases in the gold market in 2020:
So, it’s pretty obvious that the course of the pandemic was one of the most important tailwinds for the gold prices in 2020. Thus, the correction caused by the vaccine breakthroughs is not surprising, given the scale of the previous Fed and Treasury injected liquidity into the markets.
This all bodes well for gold in 2021. After all, the U.S. central bank won’t cease conducting its very easy bull market in gold shouldn’t end.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.