Gold prices aren't going anywhere anytime soon, SocGen sees precious metal around $1,675 by Q4
In their latest forecast projections, commodity analysts at Societe Generale said they see gold prices trading around $1,675 by the fourth quarter of 2021. The analysts added that the economic recovery and effective vaccine rollout could take their toll on gold prices.
The analysts warned that risks in the gold price lay firmly on the downside and that they have "weak conviction" for prices to hold above $1,700 an ounce.
"Gold looks set to have a very different 2021 than 2020 when ETF flows were nothing short of staggering in the first nine months of the year," the analysts said. "ETF flows have reversed in 2021 so far to the order of 112 tons, and prices have dropped by about $200/oz, so the flows are having a greater impact on prices on the way down than on the way up."
SocGen said that the key for gold remains interest rates and bond yields. The bank's economists said they see a 10-year Treasury note at 2% by the fourth quarter.
"It will be important to evaluate whether the market remains focused on real rates, which should stay slightly negative, or nominal rates, which should rise and appear to increase the opportunity cost of holding gold," the analysts said. "The reflation theme must include gold, and that is the one factor that leads us to maintain a positive outlook for 2021. But if that story loses momentum, our supportive outlook could fall apart very quickly."
Looking at the different scenarios for the rest of the year, SocGen sees a 28% chance that gold prices end the year at around $1,525 an ounce.
"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 dovish monetary policies and equity turmoil concerns. As investors dump even more ETFs, memories of the 2013 gold price slump might hit the market," the analysts said.
Looking at the bull case, the French bank sees only a 13% chance of higher gold prices at the end of the year.
"Systematic risks linked to overwhelming government and corporate debt or overheating equity markets would be supportive of upside risk. If one or more sovereign debt crises emerged, we see gold investment rising, but there could be headwinds, as the US dollar would strengthen," the analysts said.