Gold has peaked; it’s all downhill from here – ABN AMRO

January 22, 2021

New York (Jan 22)  The gold market 's struggle since the start of the year in the face of a stronger U.S. dollar and higher nominal yields could be a harbinger of future weak price action in 2021, according to one bank.

In a report published Thursday, Georgette Boele, senior precious metals strategist at ABN AMRO, adjusted her outlook for gold, saying that the price has peaked.

She noted that gold 's bullish environment has "deteriorated sharply" within the past month. Boele said that she sees the gold market struggling this year as rising inflation will force the Federal Reserve to tighten monetary policy faster than investors are expecting.

At the same time, improving economic conditions will help to push nominal yields higher, which in turn will raise real interest rates, another significant headwind for gold, she said. The third factor weighing on gold will be a stronger U.S. dollar, Boele added.

"It could be that a period of higher core inflation later in the year convinces some FOMC members that they are at that point 'on track ' to overshoot 2% for a time. In that case, we could well get the first hike in 2023, which is much sooner than previously expected," she said in the report. "Meanwhile, 10y U.S. real yields have declined beyond the 2012 lows. We think that inflation expectations are toppish. As we no longer expect a decline in the 10y U.S. nominal yields, U.S. real yields will improve."

With ABN AMRO seeing three major hurdles for the gold market, Boele noted that the market is a little overcrowded. She noted that there is a risk that the precious metal could see a similar selloff in 2013.

"In 2013, liquidation of 36% of the total outstanding ETF positions resulted in a decline in gold prices of 30%. These positions remain a risk," she said. "Since the peak on 15 October, they have declined by only 3.5%."

While there is the potential for another mass exodus in the gold market, Boele said that this isn 't her base case scenario.

"Real yields are still negative in a large number of countries, so that should give some support to gold prices. Moreover, investors remain concerned about the large fiscal deficit. These factors should dampen the downside in gold prices a bit," she said.

In its new forecast, ABN AMRO sees gold prices averaging the year around $1,771 an ounce, down from its previous average of $1,951 an ounce.

As for gold 's peak, Boele sees it happening in the first quarter, calling for an average price of around $1,800 an ounce.

The Dutch bank's latest outlook comes as gold tries to generate consitent momentum. Februry gold futures last traded at $1,873.90 an ounce, up 0.30% on the day.


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