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A weaker dollar won't be enough to drive gold prices higher in 2021 - Natixis

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) - A weaker U.S. dollar due to the global economic recovery after the COVID-19 pandemic won't be enough to support gold prices, according to one French Bank.

Bernard Dhadah, precious metals analyst at Natixis said in a recent interview with Kitco News that he expects gold and the U.S. dollar to both suffer from shifting investor interest as an economic recovery reduces the need for safe-have assets.

"We expect that instead of sitting on cash, investors are going to put their money to work," he said. "They're going to invest in all of the things that have been beaten up in 2020. So, there is less of a need for dollars."

Instead of looking at gold's relationship with the U.S. dollar, Dhadah said that investors need to continue to pay attention to bond yields. He added that the mass rollout of vaccines in the second half of 2021 does not bode well for gold. He said that improving economic activity will push yields higher, increasing the precious metal's opportunity costs.

Dhadah said that he also doesn't expect gold prices to get much lift from inflation pressures. Even if economic activity picks up next year, he said it wouldn't lead to major inflation.

"For gold to really be a hedge against rising prices, we really need to see double-digit inflation," he said. "We will continue to see money going into equity markets and real estate. We won't see a lot of inflation in consumer good."

Looking at 2021, Natixis is neutral on the precious metal as it sees gold prices averaging the year around $1,838 an ounce.

"Gold prices will retreat as the economy normalizes and investors see the positive impact of the COVID vaccine," he said. "I think by the end of the first half of next year, pretty much all the Western world would have vaccinated a substantial amount of the population."

Although Natixis is neutral on gold, Dhadah said that he is not expecting to see a collapse in the market.

"The Economy will still need low yields. Rates will have to remain low to support those ailing businesses," he said. "This will provide some support for gold."

As to which metal Dhadah expects will do well in 2021, he said he is keeping an eye on copper prices. The bank sees copper prices averaging $6,555 a tonne on the London Metals Exchange next year.

Dhadah added that he expects a lot of copper will be needed in the future as it will be a critical metal in what many see as an impending green energy revolution. Dhadah added that in this environment, he also sees the potential for silver prices to outshine gold.

The bank sees silver prices averaging 2021 around $23.10 an ounce.

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