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ABN AMRO says gold price can push to $2,100 next year but rally is not without risks

Kitco News

Kitco News has launched its 2021 Outlook, which offers the most comprehensive coverage of precious metals markets in the new year. Trillions of dollars were pumped into financial markets in 2020 and that won't come without consequences. Economists expect that investors will be Bracing For Inflation in 2021.

(Kitco News) - The gold market has room to move higher in 2021, but one international bank notes that the marketplace will be plagued with uncertainty.

Georgette Boele, senior precious metals strategist at ABN AMRO, said in a 2021 outlook report that gold will continue to garner support as a "new normal” is established throughout financial markets.

Boele noted that gold saw unpreceded demand this past year as currencies around the world remain unattractive in an environment of "rock-bottom interest rates.” She added that this theme will continue to dominate sentiment in the precious metals sector next year.

The bank sees gold prices averaging next year around $1,950 an ounce, with gold prices trading around $2,100 an ounce by December 2021.

"We expect the Fed to keep policy rates low in the coming years. The Fed will also limit the rise in U.S. treasury yields to support the economy,” she said in her research, "In fact, we expect lower U.S. Treasury yields for 2021. If inflation expectations stay around the current level, lower U.S. Treasury yields will result in lower U.S. real yields. This is a clear negative for the dollar and a positive for gold prices.”

Boele's outlook comes as the gold market sees new bullish momentum, which picked after the Federal Reserve's monetary policy meeting Wednesday. The U.S. central bank reiterated its stance that it will maintain its ultra-loose monetary policy for the foreseeable future.

Although improving economic sentiment could impact gold's safe-haven allure. Boele said that investors still face a new paradigm shift as central banks are not expected to tighten monetary policy, even as the global economy recovers from the COVID-19 pandemic.

"Gold prices have the tendency to weaken if an economic recovery goes hand in hand with expectations of tighter monetary policy and higher rates. But gold prices have the tendency to rise if the economy recovers but monetary stimulus remains in place and U.S. real yields decline,” she said. "This is also our base case. But we are in an exceptional environment where normal relationships are challenged.”

While the Dutch Bank is bullish on gold, Boele added that their outlook is not without risks. A major bearish factor she highlighted in her report is the market's current positioning, especially in exchange-traded products.

"The total ETF positions are still huge. Since the peak on 15 October they have declined by only 4%. These positions are still 28% higher than at the start of the year and 29% higher than the former peak of 20 December 2012,” she said. "In short, gold is still a crowded trade. In 2013 a liquidation of 36% of the total outstanding ETF positions resulted in a decline in gold prices of 30%. These positions remain a risk.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.