International Forecaster Weekly

2021 OUTLOOK FOR GOLD IS STRONG - Will It Rise to $2,100, $2,500, $3,000 or More?

As you know, the performance of gold responds to the interaction of demand and supply, which, in turn, is influenced by the interplay of four key drivers: 

  • Economic expansion;
  • Risk and uncertainty;
  • Opportunity cost; and
  • Price momentum

Gold Dollar

Guest Writer | January 20, 2021

By Dave Allen for Discount Gold & Silver

The New York spot price of gold increased 24.6% last year, while the spot price of silver was up a whopping 47.5% — outperforming all major assets except the tech-laden NASDAQ. 

Comparatively, U.S. stocks, as measured by the S&P 500, rose 15.6% in 2020 — roughly more than one-third and two-thirds lower than the increases in gold and silver, respectively.

The precious metal’s performance was driven in a broad sense by a combination of three primary factors: 

High volatility with a resulting flight from risk, prolonged low interest rates, and positive price momentum – especially during late spring and summer. 

Gold, in particular, also had one of the lowest drawdowns during the year, thus helping investors limit losses and manage that volatility risk in their portfolios. 


In its 2021 outlook released this week, the World Gold Council reminds us that by early August, gold reached an historical high of US$2,067 as well as record highs in all other major currencies. 

While gold subsequently consolidated below that high, it remained comfortably above its average daily price of $1,828 for almost all of the 2nd half of 2020 — finishing the year at just shy of $1,894 an ounce.

Interestingly, the WGC says that gold’s performance in the 3rd and 4th quarters seemed to be linked more to physical investment demand — whether in the form of gold ETFs or coins and bars — rather than through the more speculative futures market. 

For example, net long positioning reached an all-time high of 1,209 tons in early in the year, but ended the year almost 300 tons, or 30%, below this level. 

The WGC believes that was due to the “dislocation that COMEX futures experienced in March [compared] to the spot gold price.” That made it more expensive for investors to hold futures compared to alternatives. 

The WGC concludes that investors’ preference for physical and related gold products last year suggests that “gold was used by many as a strategic asset rather than purely a tactical play.” 


Many market observers, including us, are concerned about the growing risks resulting from expanding budget deficits and the national debt.

Rising debt — government and corporate alike — combined with the ultra-low interest rate environment and growing money supply, signals heavier inflationary pressures ahead. And that’s good for gold.

This concern is being accentuated by central banks like the Fed and European Central Bank signaling greater tolerance of inflation being above their traditional targets for a longer period of time. 

As you know, gold has traditionally performed well amid stock market pullbacks and high inflation. In the years since 1970, when inflation has been higher than 3%, gold has increased 15% on average. 

Further, gold has been more effective in keeping up with global money supply over the past decade than Treasuries, and that’s helping investors to better preserve principal.

Another important factor we follow is central bank demand for gold. After their positive gold demand in the 1st half of 2020, central bank demand became vacillated in the 2nd half — varying between monthly net purchases and net sales. 

That was a distinct change from the consistent buying we saw for many years, driven in large part by the Central Bank of Russia’s decision to literally cut in half its long-time buying program in April. 


Despite this trend, the WGC estimates that central banks will finish 2020 as net purchasers and expects 2021 to be similar. 

The WGC also sees a likely recovery in mine production this year after the retreat seen through most of 2020. Production interruptions that peaked during the 2nd quarter last year have since waned. 

While 2021 uncertainty still abounds in this area, the WGC is confident that mines will experience fewer stoppages as the world recovers from the pandemic through distribution of vaccines. 

That would remove a significant headwind that companies experienced in 2020 but one that’s not a common component of production drivers. 

Even if potential second waves of the virus impact producing countries, major companies have introduced procedures that should reduce the impact of stoppages compared to those seen in the early stages of the pandemic.

As you know, the performance of gold responds to the interaction of demand and supply, which, in turn, is influenced by the interplay of four key drivers: 

  • Economic expansion;
  • Risk and uncertainty;
  • Opportunity cost; and
  • Price momentum.


In this context, the WGC expects the need for effective hedges and the low interest rate environment to keep gold’s investment demand strong. 

Thus, its price, which has retreated 3.5% to start the year (silver is down 5.9%), stands to have another strong performance in 2021.

We agree. Although gold and silver are in a post-election profit-taking period right now (you know what they say...Buy on the dip!), we expect their prices to surge to another level as the year goes on. 

Whether gold ends 2021 at $2,100, $2,300, $2,500 or $3,000 remains to be seen. Whatever heights it soars to, don’t be left out.