Gold’s second great bull run, which caused the yellow metal to cross the $2,000-an-ounce mark for the first time ever in 2020, looks poised to end, analysts and investment banks said.
At press time, the yellow metal was trading at $1,729 an ounce.
In a March 10 blog post, Russ Koesterich, portfolio manager for BlackRock’s Global Allocation Fund, noted that the price of gold has declined by roughly 5% over the past three months, and he expected that decline to continue.
Gold’s rise was fueled in part by uncertainty over the COVID-19 pandemic and the resultant economic fallout. But now “more stimulus and improving vaccine distribution suggest the possibility of an economic surge,” Koesterich wrote. That could cause real rates to fall from their historically depressed levels, which has historically hurt the price of gold.
He argued that gold has “not been an effective hedge recently,” as it hasn’t shown much correlation with either stocks or inflation.
Gold has “demonstrat[ed] a strong, negative relationship with the dollar,” so it’s useful as a dollar hedge. But he clearly doesn’t feel there is much need for that.
“Absent a strong view on a declining dollar, I would own less gold,” he said. “And for those investors still looking for a hedge, one word: cash.”
Koesterich is just one of a string of analysts who have turned suddenly bearish on the yellow metal.
In January, ABN Amro senior FX and precious metal strategist Georgette Boele predicted that gold will end the year at $1,700 an ounce—about where it is now.
“The outlook has deteriorated sharply,” she wrote. “We no longer expect higher gold prices.… [T]he longer-term uptrend is over.”
She said the yellow metal’s price will stagnate because of a “less dovish” Federal Reserve, rising real yields in the United States, and a rising dollar.
Two factors, however, might cushion any fall: Real yields remain negative in a large number of countries, and some investors are concerned about the federal deficit.
Goldman Sachs said in February that it still sees some “upside” for bullion, although it has lowered its 2021 price target from $2,300 an ounce to $2,000.
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