Silver is expected to be the best performing precious metal in 2021 at $28.50. Gains are in the future for all precious metals this year, but silver is believed to be the big winner.
Analysts are forecasting the price of gold to hit $1,973.8. This implies a 11.5 percent jump relative to the 2020 average (roughly in line with last year), but just a 4.6 percent increase compared to the price in the first half of January 2021. Silver, on the other hand, is expected to hit an average of $28.5 in 2021, 38.7 percent higher than last year, and 8.1 percent up from the mid-January. The forecast for all metals is presented in the table below.
Among the important drivers of the performance of the precious metals prices this year are geopolitical factors, the impact of the COVID-19 pandemic, and the pace of economic recovery. However, in line with the gold market, the top three drivers for the gold price pointed out by the analysts are more related to the macroeconomic factors: negative or falling interest rates, a weaker U.S. dollar, and U.S. fiscal and monetary policies.
Of course, the numbers above are averages of more than 30 forecasts from different analysts. The most bearish expert sees the average price of gold as low as $1.650, while the most bullish participant at $2,300. Also interesting is the wide high/low range of $1,192 ($2.680 as the highest high and $1,488 as the lowest low) compared to $780 last year. So, it could shape itself to be a volatile year!
For cautious thinkers, the current bearish/sideways trend is disturbing – especially when compared to Bitcoin – and there are important downside risks. In particular, with the ongoing economic recovery, the risk appetite could strengthen, and the real interest rates could increase, given their already ultra-low levels. The bond yields could rise especially if investors start to expect the Fed’s tapering of quantitative easing.
Additional factors include rising public debt; likely to balloon even further most of this year. Thus, investors may get worried about the high indebtedness and the increased likelihood of the debt crisis and buy more gold as a safe haven. Given the lavish fiscal policy, the Fed will remain very dovish, while the real interest rates will stay well in the negative territory, supporting gold prices. Indeed, the yields on almost 30 percent of the world’s investment-grade debt are now below zero, which should strengthen gold’s appeal as a portfolio diversifier. Actually, if inflation expectations pick up (partially due to rising oil prices), the real yields could decline again, supporting gold prices.
Implications for Gold
The annual forecast survey report for the gold metal is bullish, as participants expect double-digit price gains this year compared to 2020. However, only modest increases are foreseen from the first half of January 2021. Many also agree that gold could have trouble duplicating the bullish performance of the last year (especially if higher inflation doesn’t materialize).
Interestingly, while most analysts are cautiously optimistic about gold, pretty much everyone across the board is way more upbeat on silver, believing that it will outperform the yellow metal in 2021. Although it seems that the short squeeze in the silver market attempted by Reddit investors has failed, there is no doubt that the poor man’s gold started 2021 better than the yellow metal. Will this trend continue? Only time will tell!