The rise in the price of gold observed last year has slowed down this year, and analysts predict that the price will not rise as fast as last year, but a moderate increase could be expected.
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Global demand for gold has been at its lowest level since 2009 as the pandemic has reduced consumer demand for the precious metal, according to data compiled by the World Gold Council.
Total demand for gold has fallen by 14% to 3759.6 tonnes, falling below the 4,000-ton mark for the first time since 2009.
“While demand for the poor performance in the second quarter gradually improved, consumers around the world remained cautious given the constraints associated with the spread of Covid-19, the poor economic situation and high gold prices,” the report said.
In the fourth quarter, demand for gold stood at 783.4 tonnes, down 28% year on year, and was the worst quarterly since the financial crisis in the second quarter of 2008.
Demand for gold jewelry fell by 13% in the fourth quarter and by 34% for the year as a whole.
In turn, demand for gold bars and coins increased by 10% in the fourth quarter, while private investment increased by 2%, with total demand in these sectors reaching 896.1 tonnes. However, it is lower than the average of the last ten years, when the amount of investments reached 1199.5 tons.
Central bank purchases declined sharply, especially in the second quarter. During the year, central banks purchased a total of 272.9 tons of gold, which is 59% less than in the previous year, and 86% of this amount was purchased in the first quarter of last year.
Demand in the technology sector fell by 7%.
Following last year’s rise, the rise in the price of gold has slowed this year, with the price of the gold bar falling by around 3% in January, the worst January result since 2011, according to Bloomberg.
Investors are currently deciding in favor of investing in US dollars, writes Reuters. The US Federal Reserve’s meeting on Wednesday also discouraged investment, and the dollar strengthened before and after the meeting, with investors seeing the currency as a safe haven.
“Wednesday’s FRS meeting did not have a positive effect on gold, as the dollar strengthened before and after it, and it was sought as a safe haven due to other financial market problems that also affected gold prices,” said Danieks Brizemans, a Commerzbank analyst.
The FRS said the pace of economic recovery and employment in the US had stabilized in recent months, but key interest rates and the size of the monthly asset purchase program remained unchanged.
“Looking at gold, it seems that the market was expecting a tougher FRS position,” said Giovanni Staunovo, an analyst at UBS Group. “However, I still predict that we can expect a higher price of gold this quarter, supported by lower interest rates and a weaker dollar,” he said.
Investors and market analysts are divided on the future direction of the gold price, but experts agree that it will be affected by the following main factors.
One is the rate of vaccination and the further spread of Covid-19. Any pandemic will disrupt the global economy, so the spread of the new strain of the virus will be an important aspect. At such uncertain times, the price of gold is going up. Although the likelihood of such a scenario in the near future is minimal, it is difficult to predict the development of the situation. On the other hand, if the global economy begins to return to the path of recovery, investors will become more optimistic and leave gold to buy riskier assets.
Changes in the value of the dollar also play an important role. As the dollar weakens, the price of gold has traditionally risen, and has been observed in previous years.
The direction of the gold price is also influenced by the relations between the USA and China, although it seems that with the inauguration of the new president, tensions could ease and the price of gold would not rise so rapidly.
The United States and the rest of the world are currently printing trillions of dollars to help the economy recover. This will ultimately stimulate inflation, which is an important ally for gold, and as inflation rises, the price of gold will rise. According to World Gold Council experts, in the years when inflation rose by an average of at least 3%, the price of gold rose by 15%.
Factors such as gold mining rates and central bank purchases will also play an important role in the future dynamics of gold prices. At present, it is not observed that any of the countries would expressly get rid of gold reserves.
The World Gold Council’s 2021 forecast report says many economists expect gold demand to remain subdued, but to grow faster in China as the country’s economy recovers faster.