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A robust economic outlook could keep gold under pressure in 2021

A robust economic outlook could keep gold under pressure in 2021

Gold prices have been making volatile moves over the past couple of days amid speculations about interest rate policy and economic growth projections.

The precious yellow metal, which hit $2,000 an ounce during the third quarter last year, failed to sustain gains in 2021 despite zero interest rate policy.

The underperformance is blamed on strong economic growth projections that continue to shift investors’ focus towards more risky assets, including stock markets and cryptocurrencies.

Gold price performance. Finviz chart

Additionally, data compiled by Finbold analysts show that in 2021, Bitcoin trading volume accounts for almost 40% of the average daily gold trading volume. It is a whopping percentage having in mind that bitcoin’s market capitalization accounts for just 9% of gold’s $10.99 trillion. It’s a clear indicator that investors are currently more speculative about bitcoin.

Source: Finbold.com

Gold is projected to trade around $1,700 to $1,800 range  

Gold price is currently trading around $1,730/oz after starting the year around $1,900. The downward momentum is supported by economic growth trends and coronavirus vaccine discovery.  

The Federal Reserve projects strong economic growth trends for this year, with U.S. gross domestic product is expected to hit 6.5% compared to the prior guidance of 4.2%. Moreover, the Fed anticipates 3.3% GDP growth for 2022 compared to the prior forecast of 3.2%.

Despite stronger economic projections, the gold price is likely to receive support from central banks’ buying strategy. Besides, improving trends in the jewelry markets would also support the gold prices.

Luxury gold jewelry demand fell significantly last year due to higher prices and lockdowns.

“We think this is going to settle between $1,700 per ounce and $1,800 per ounce range where it has been trading recently. It may go down a bit. We believe that central banks, particularly in emerging markets (EMs), are going to be increasing their gold holdings just as they were increasing them over the course of the ten years before the pandemic made them a little bit too expensive for EMs central banks,” said Edward Morse, Global Head of Commodities Research at Citigroup.

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