Gold price forecast 4 March 2021

2021-03-04

Gold surrenders. Forecast as of 04.03.2021Dmitri Demidenko

Parallels between the current and previous economic crises are apparent. The same massive incentives and growth in US Treasury yields. How will this affect gold? Let us discuss this topic and make up a trading plan.

Fundamental gold forecast for a year

History repeats itself, alas, negatively affecting gold. There are too many similarities between the current and previous economic crises to be safe to say that the [XAUUSD][1] uptrend is broken down. The same colossal fiscal and monetary stimulus in response to the recession, the same rapid growth in Treasury bond yields, the same capital outflow from ETFs. It seems that the gold will not hit the $2,000 per ounce mark for several years, perhaps a decade.

It is no coincidence that February was the worst month for gold since 2016. The precious metal is losing its shine amid growing investor confidence in a bright future for the US and global economy and competition from other financial market assets. The new generation chooses bitcoin, while commodities can hedge against inflation risks just as well as gold.

The growth in Treasury bond yields is hitting not only stocks, so they look fundamentally overvalued, but also the precious metals market. The cost of holding assets in ETFs is on the rise, and non-interest-bearing gold cannot compete with Treasuries, especially when their rates are skyrocketing.

Dynamics of gold and 10-year treasury yields

Source: Investing.

There is no doubt that events during the previous economic crisis developed more slowly than they do now. [XAUUSD][1] prices reached a historic high in 2011, and the transition to the bearish trend took place only in 2013 due to the taper tantrum provoked by the Fed. However, one must understand that, first, the nature of the current recession is unique. Second, the scale of monetary and fiscal stimuli is not comparable to the previous ones. As a result, many processes go faster.

Gold dynamics during the previous and current recessions with 2011

and 2020 highs

Source: Investing.

Does it make sense to keep a non-interest-bearing asset, which also has many competitors, during a period of the world economy’s rapid growth? According to Bloomberg estimates, consumers in the United States, China, the UK, Japan, and the Eurozone accumulated a whopping $2.9 trillion during lockdowns, which will help boost global GDP and global bond market yields. Thus, it is unlikely that gold will be able to recover the previously existing trend.

In my opinion, gold lost the war, but it can still win a couple of battles. I still expect a slight weakening of the USD index this year because the US production is not keeping pace with rapidly growing domestic demand. Due to the rapid increase in imports, the US foreign trade deficit in January reached its second all-time high since 1989. Therefore, the US economy’s growth will have a positive impact on the global economy and greenback’s competitor currencies.

Gold trading plan for a year

At the same time, the local successes of the [XAUUSD][1] bulls should not be misleading. The uptrend is broken down, and I wouldn’t be surprised if the gold will reach $1,640 and $1,570 per ounce marks in 2021. The recommendation is to sell the precious metal.

Price chart of XAUUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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