Gold after making an all-time high of US$ 2067 in August 2020, corrected down to the 1890 and 1860 levels. Currently, gold is trading at around the 1840 level. The pull back in gold prices is probably a prelude to testing lower levels, and as indicated in our last update, technically, the resistance levels will be 2000 or 2030, the highs set earlier last year.
Central banks made lot of purchases in gold for three years in a row, from 2018 to 2020. But the year 2020 saw some selling too from central banks though overall they were net purchasers in the final analysis. Central banks may still find good value in gold as a part of their reserves due to the continued uncertainties in the economies. But the strong purchases from central banks may not be there in the coming months.
The primary production from mines was affected in 2020, especially in the second and third quarter of the year. This disruption was a temporary phenomenon occasioned by the pandemic and the related ups and downs. It is expected that there will not be similar production shutdowns at any time in the near future.
The main factor on which gold prices would be dependent will be the excess liquidity conditions prevailing in some of the major economies of the world. There are further hopes of higher prices in future based on higher inflationary expectations following the rebound in economic recovery and the rise in economic activity. It is expected that all these things will add up to an environment that is conducive to higher gold prices. But this may be negated completely if there is a sudden rise in interest rates in response to the higher inflation. This may result in higher currency yield not only for the US Dollar but also for other major currencies which may be reserve currencies. Also, demand from India and China have not moved up as expected earlier, though there is a feeling that economic growth as it sets in will attract more investments into the yellow metal.
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