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Gold will retest new highs in 2021 as more stimulus is coming - Aberdeen Standard Investments

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) - Congress has finally passed much-needed stimulus measures to support the U.S. economy and residents whose lives have been devastated by the COVID-19 pandemic.

The gold market has struggled to hold on to the critical psychological support above $1,900 as some disappointment creeps into the marketplace. The $900 billion stimulus package passed by Congress late Sunday is less than what some economists and market analysts have expected.

However, one market analyst said that gold investors shouldn't give up on the precious metal as the U.S. economy will continue to need further support as the scars of the pandemic will run deep through most of 2021.

In a recent telephone interview with Kitco News, Steve Dunn, head of exchange-traded products at Aberdeen Standard Investments, said that he expects gold prices to push above $2,000 an ounce the new year.

"From everything I have seen, it would lead me to believe that this is probably not the last stimulus package, as some of the issues we face are structural issues that will certainly haunt us into 2021, from an economic perspective," he said.

At the very least, Dunn said that interest rates would not be going higher next year, which will remain significant support for the precious metal. He added that even without more stimulus measures, low interest rates will also push down the U.S dollar, further tailwinds for the yellow metal.

Dunn said that the bond market would probably be the biggest bullish factor for the precious metal in 2021. The amount of negative-yielding debt around the world is now valued at more than $18 trillion, a new record heading into the new year.

"We haven't heard much about growing negative debt, but the reality is, it is a rather large and disturbing number," he said. "We are just starting to see the bind fixed-income investors are in right now. There are not a lot of alternatives to a traditional fixed income portfolio. In this scenario, I think gold will attract a lot of new attention in 2021. Gold is a better alternative when the 10-year yields are below 1%."

Not only are nominal yields expected to remain at low levels through 2021, but Dunn noted that once inflation starts to pick up, real yields could fall further into negative territory, which is what will ultimately drive gold prices higher.

"Any way you look at it, there is a really strong story for gold in 2021. We will see $2,000 gold in 2021 and retest the highs that we saw in August," he said.

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