The gold market still has a lot of support from alternative investors, and even this last year, there was a lot of optimism to be had for it. But now, there are more question marks and a bit of skepticism with all the events of late 2020 coming to a head leading into next year.
It has been quite a year for the gold market, with the precious metal reaching a record high of $2,075 per ounce, yet only to drop after the COVID vaccine was announced. The ripe conditions for a gold bull market were driven not only by the economic lockdowns and slow GDP growth but an increase in money printing and continued low-interest rates also spurred the gold demand.
When Pfizer announced their vaccine, the bear market seemed to hit gold, and the prospects of an already recovering economy taking off further have also loomed large. Investors have not completely dumped gold, but with the treasury bond also showing high yields on 10-year bonds and the likelihood of portfolio managers going back to other assets, it could be more difficult for gold to gain traction in this environment.
Why should gold investors not dump it just yet?
Once the vaccine is released and lockdowns are done away with completely, some experts say money will be flooding Main Street, and while businesses and their suppliers will see immediate benefits, consumers are likely to see inflation. Barring a spike in interest rates by the Fed or a sudden demand for the dollar in foreign trade, a sudden rise in prices is a real prospect that investors should stay wary of and consider riding out the gold market waves a little longer. Add that to the national debt still not being brought under control.
One of the challenges for gold is that a significant portion of its investors still tends to buy into it through ETFs. This causes its price to swing a lot more when news of developments such as Pfizer’s vaccine comes out. And gold is also competing with bitcoin, which has been on the rise as a digital safe-haven asset.