Should you buy or sell gold?

Gold prices are likely to have a bullish run this quarter, although prices are rocky right now.  The Democrats win in the Georgia Senate Runoff Elections supports the delivery of a fiscal stimulus said to push gold prices higher, although gold price is currently bearish. With gold in a current dip and overall prices set to increase, is it time to buy?

Gold is a metal commodity which is valued against the US dollar. Gold holds its value well, making it a safe haven for investors, although recently gold has been rockier than usual especially with the distraction of rising Bitcoin, investors are turning to crypto. Despite this, gold is a great hedge against inflation and typically follows opposite trends to stocks and bonds, meaning when typical markets decline, gold can increase. This means it is a great investment for uncertain times like these. 

Gold stocks and gold ETFs are the easiest way to invest in gold – there are two types of ETFs, those that track gold stocks such as VanEck Vectors Gold Miners ETF or a direct tracker of gold prices such as GLD ETF. It is good to be aware that investing in gold mining stocks such as Barrick Gold, Newmont and KirklandLake Gold finances gold miners and helps them make more profit. Increasing the price of gold inflates the bottom line to increase the profitability of miners, supporting the industry as a whole and feeding back profit into your investments. 

A record price of $2,070 was observed mid-2020 before falling back to $1,770 at the start of December. Will we see gold hitting the $2000 mark or declining over 2021? The jury is out.

Recent news

Gold prices sank below $1900 per ounce this week as Senate runoff elections and the riots in the US Capitol rose the dollar and Treasury yields higher. Despite this, gold is expected to continue its upward momentum as Democrats are set to release more fiscal help to revive the US economy. 

Following the Georgia elections on Tuesday the gold price rose to $1,950 with SPDR Gold Shares ETF seeing a 2% price jump. Now the Democrats have secured a win in both Georgia runoffs taking charge of the Senate, fiscal support can be given out encouraging gold prices to rise. The fiscal stimulus will push up the federal deficit and debt creating a nurturing environment for gold prices to creep up. 

Contrary to what was expected, the price drop in gold is largely accountable from Dow’s action to put a risk-on market alert for the historically safe-haven commodity. This sparked a swift sell-off as investors were nervous investing in gold no longer guaranteed profits. 

Fiscal policy is an important control on gold price. In December, the Federal Reserve policymakers suggested a shift to tighten policy was ahead also making gold a less attractive investment. Although they are holding loose policy for the next year so don’t be put off too quickly. 

While liquidity is flooding financial markets and central banks commit to keeping policies loose in the short term to increase price pressures to push gold higher, hopes for the end of the pandemic due to various vaccines being rolled out has dampened investors reliance on gold as a safe-haven commodity. 

Another factor that affects gold price is increased buying of physical gold in Asian markets this time of year. Consumer demand may pick up with the Chinese festival of the Lunar New Year coming up that has historically pushed up prices in January. Although with economic recession and the global pandemic limiting festivities, will we see the effect of this?

Buy or sell

There is uncertainty whether you should buy or sell gold at the moment as price forecasts range from large gains to large losses. Moving averages recommend buying whereas technical indicators suggest selling. Whereas, markets show investors voting with their feet with a slight bias to buying gold. 

Considering the Democrats win hitting the news this Tuesday, Gold currently sees an overall buy at 50-60% of traders buying.  The strength in buying is currently weak but is increasing day-on-day. 

Long-term gold is a hedge against inflation making it a robust investment. Over 1 year, gold futures rose 20.5%. In August, Warren Buffett’s Berkshire Hathaway bought shares of gold miner Barrick Gold indicating the future is bright. However, there has been a fair amount of movement over the last few months and not all of it positive. 

Retail traders are mostly net long at almost 3 to 1. Although net-long traders have dropped by 7.2% since last week and those who are net-short are 41.4% higher than last week showing this pattern is reversing. This summary seems to suggest Gold prices may only fall short-term and see a reversal soon as more traders are starting to go net-long over the past few days. 

Chart from Investing.com

Price prediction

In mid-November Goldman Sachs chief commodity strategist, Jeff Currie predicted a $2,300 12-month target for gold. His bullish prediction was based on a forecast of rising inflation due to the poor economic state and doubts as to how the US dollar will perform in the current economic climate.

If we look at predictions just one month ago, there was an optimistic outlook for gold. Using a monthly chart, gold continues to rise following the ascending trend since summer 2019. XAU/USD is expected to rise above $2,000 early to mid-2021 using this prediction.

Forecast Poll 2021 from FXStreet

Since then, expert opinion has been more bleak with some predictions showing a price fall over the next 12 months. The future of gold is rocky with predictions over the next 12-months seeing a downtrend to $1767.

Graph from tradingeconomics.com

Over the short-term gold is likely to see a rise. Gold tends to benefit from times of greater volatility. The past few days saw gold volatility rise correlating to a rise in gold price. Rising gold volatility has almost always given a bullish outcome. 

The gold price outlook is bullish over the first quarter of 2021, although there is some dispute over this. We recommend you look at the graphs and resources provided to judge for yourself. 

Considering government deficits and interest rates staying low the economy is looking for growth post-pandemic. It might surprise you but gold is not the best performing commodity out there. Silver prices’ recent trends suggest that it may likely lead gold prices in the future. One thing that is more solid in terms of predictions is that gold will not likely be the frontrunner of growth with other metals such as silver, platinum, iron, nickel or copper likely to outpace gold prices this quarter. 

After a correction to the bullish trend, a fresh bullish impulse is expected to rise gold prices over this next year. Commitment to support the recovery of gold from governments and central banks could see gold push above the $2,000 mark. August and November saw highs setting a bull flag that was watched closely over December. Gold prices have passed the 38% Fibonacci retracements of the 2020 low high range of 1928 but have not yet passed the November high of 1965. If this level was broken a bullish run could be ahead, opening up the possibility of a move to $2000 or higher. The markets are likely to be jumpy until an influx of buyers bring up the price. Short-term however, there will likely to be some dips, opening up the chance to go short. 

The table below is a good summary of what has been discussed. Gold’s future over the next 12-months is highly uncertain, possibly the most uncertain in recent history! Whether gold is a buy or sell is really open to opinion. 

Table from UK investing

Apply the same principles to buying gold as any stocks or ETFs meaning wait for the right buying point and do your research as to how stocks will perform. If you are uncertain whether to enter the gold markets, try our risk-free trading simulator app first! BullBear provides investing practice for free!

Published by bullbear.io

Optimising trading success through competition and guidance.

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