Most of gold's 'big gains are behind us,' says Capital Economics

New York (Jan 8)  Gold had a stellar year, rising more than 25% in 2020, but its best days are likely behind it when it comes to the outlook for 2021, said Capital Economics in its latest commodities update.

Gold ended the year on a very positive note, with prices comfortably breaching the key psychological $1,900 an ounce level on the first days of 2021. Earlier in the year, gold set a new all-time high of above $2,060 an ounce in August.

"The depreciation of the U.S. dollar coupled with a slight decline in U.S. real yields meant that precious metals prices surged last month, capping a stellar 2020," said Capital Economics chief commodities economist Caroline Bain.

Capital Economics sees gold prices dangling around $1,900 an ounce for the rest of 2021 and then dropping to $1,875 by the end of Q1 2022. At the time of writing, February Comex gold futures were trading at $1,915.50, up 0.36% on the day.

The reason behind the firm's fairly neutral outlook is the growing risk-on sentiment that will pull attention away from gold, noted Bain.

"We expect U.S. real yields to fall further in 2021 as inflation expectations rebound in tandem with higher oil prices. However, we think that most of the big gains in gold prices are behind us as a successful rollout of coronavirus vaccines would intensify investor selling of safe-haven assets, such as gold-backed ETFs," she wrote on Tuesday.

Capital Economics also projects for the platinum's rise to reverse, estimating $950 by the end of this quarter, followed by a drop to $850 by the end of 2021.

"The December rises in the prices of gold and silver provided a boost to the price of platinum. Nevertheless, we expect it to ease back next year as the market swings into a small surplus owing to a fall in global demand as well as a vaccine-related rebound in mine supply," Bain added.

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