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'Don't be surprised to see new highs this quarter': Gold price jumps more than $50 to start the new year

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(Kitco News) Gold is ready for new highs in the new year as some analysts say the consolidation period in gold is over and risk is back on the table.

On Monday, gold surged more than $50, trading well above the $1,900 mark. The February Comex gold futures were last at $1,944.30, up 2.60% on the day, after almost hitting $1,950 an ounce earlier in the session.

"The consolidation in gold has run its course, with political risk back on the agenda to start the New Year. The upcoming Georgia Senate runoffs and the formal counting of Electoral College votes in Congress helped the yellow metal break out of the bull flag, which technically marked its monthslong consolidation, in turn catalyzing a CTA buying program," said TD Securities commodity strategists on Monday.

The Georgia Senate runoff elections, scheduled for Tuesday, will see races between Republican Senator David Perdue and Democrat Jon Ossoff, as well as Republican Senator Kelly Loeffler and Democrat Rev. Raphael Warnock.

More than three million Georgia residents have already cast their votes in the two races that will determine whether Democrats or Republicans end up controlling the U.S. Senate.

The potential outcome is playing in gold's favor so far as markets are starting to price in a Democratic win, which would translate into more stimulus and higher inflation, according to analysts.

"Markets are increasingly pricing in the potential for a Blue Sweep, with betting markets and polls now attributing a higher likelihood of a Democratic win for both Senate seats in the Georgia runoffs. Indeed, this remains a substantial upside risk for precious metals, although we caution that controversy surrounding the absentee ballots may also result in a delayed outcome," TD Securities pointed out.

Gold is well supported due to rising inflation expectations in the U.S., said Commerzbank analyst Daniel Briesemann.

"The chances of the Democrats winning both seats have increased of late, meaning that they would also have the majority in the Senate, as well as in the House of Representatives. This would make it easier for the newly elected U.S. President Biden to push through his planned expansionary fiscal policy," Briesemann pointed out.

Gold's price action has already triggered more buying in gold, TD Securities added. "Gold remains cheap relative to macro factors as real rates grind lower, which should keep capital flowing into the complex. This dynamic especially has room to run if the Democrats take the Senate as inflation breakevens could rise further as a result," the strategists said.

U.S. dollar weakness at the start of the new year is also boosting gold prices, noted FXTM chief market strategist Hussein Sayed.

"The greenback remains an unloved currency on the first trading day of 2021. Low interest rates and an improving economic outlook following vaccines rollout has led to further short selling in the U.S. dollar," Sayed said.

In case of a Democratic win at the Georgia Senate runoff elections, the U.S. dollar is likely to see further losses, the strategist added. "Tuesday's Georgia Senate runoff elections will be critical for the U.S. Dollar as a Democrat win of the two Senate seats could potentially unleash a lot more stimulus, which simply suggests more pain for the greenback," he said on Monday.

Gold has a few other drivers pushing prices higher in 2021, including the still surging COVID-19 cases and loose monetary policies, Sayed noted.

"The pandemic will not disappear in a matter of weeks with tougher lockdowns also expected as COVID cases continue to rise. Hence central banks will need to keep policy loose by expanding their balance sheets. And given we are starting 2021 with extraordinarily rich valuations in equity markets, gold is a must-have asset in portfolios," he said. "It is only a matter of time before we cross back above $2,000, and I won't be surprised if new highs are recorded in the first quarter of 2021."

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