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Gold prices to peak at $2,300 in first half of 2021 - Societe Generale

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(Kitco News) - Gold prices have room to move higher even with the market facing growing headwinds as potential COVID-19 vaccines boost positive investor sentiment; however, commodity analysts at Societe Generale said that they are looking for prices to peak in the first half of 2021.

In a report published Tuesday, analysts at the French bank said ultra-low interest rates around the world, coupled with a weak U.S. dollar, will continue to support gold prices through the first two quarters of next year; however, gold prices could struggle in the second half of the year as “normalcy” returns to the marketplace.

“We have for several months forecast that a return to ‘normalcy’ would be a bearish factor for gold,” the analysts said.

The analysts said that in their bullish gold scenario, they see gold prices reaching an all-time peak of $2,340 an ounce in the first quarter of 2021. The bank’s average gold price for next year comes in at $2,050 an ounce.

“Negative real rates, record levels of negative-yielding assets, expanding U.S. debt, a strengthening CNY and, eventually, potential flows into E.M. assets will pressure the U.S. dollar and be supportive for gold,” the analysts said.

Looking out to 2022, the SocGen sees prices falling back to $1,800 an ounce. They noted that potential vaccines for the coronavirus represent a “light at the end of a tunnel.”

The analyst said that gold’s outlook depends on how the economy recovers from the COVID-19 pandemic. They said that the vaccine poses the biggest risk to gold.

The bank’s base case forecast for 2021 is for global GDP to grow 5.4% next year; at the same time, they see a 25% chance of a bullish scenario where global GDP expand 6.1%.

“Our upside economic scenario, which implies an extremely smooth and effective rollout of a vaccine, would still be the most bearish for gold as it would ease equity turmoil concerns and dovish monetary policies,” the analysts said. “As investors begin to liquidate holdings, memories of the 2013 gold price decline would resurface. Having said that, bargain-hunting would surface too, limiting declines.”

Looking at market dynamics, SocGen said that investor demand will remain the biggest driver for gold in 2021. They said that they see holdings in global exchange-traded products (ETPs) to expand by 300 tonnes next year, which would be down from the 800 tonne-increase seen this year.

“We believe this is front-loaded toward the first half of 2021,” the analysts said. “We expect flows to reverse and see outward flows of 100 tonnes in 2022 on a weaker demand for haven assets.”

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