Gold and Silver Price Forecast: Is it Too Late to Invest in Precious Metals?

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Gold and silver markets have been especially volatile this year, dropping sharply in March as the Covid-19 pandemic spread and then skyrocketing to multi-year highs in August right before slipping back in September.

What is the gold and silver outlook? Are prices set to resume the rally, or has the opportunity to invest in the metals passed?

Our gold and silver analysis looks at what has been driving the volatility and analyst forecasts for the metals going into 2021.

Flight to safety drives gold and silver markets

The gold price reached an all-time high of $2,069 per ounce on August 6, rising by 35 per cent since the start of 2020 and 40 per cent from the March lows. After the initial reaction to the spread of the Covid-19 pandemic, when investors sold off assets across the board, gold has become an increasingly attractive investment as low interest rates and unprecedented economic stimulus have driven safe-haven demand for the metal as a store of value.

Gold and silver prices charts show that the gold and silver ratio – the number of ounces of silver needed to buy one ounce of gold – climbed above 114 in April as the silver market lagged gold, but the ratio dropped towards 68 in August as gains in the white metal accelerated relative to gold.

Gold/silver ratio chartSilver started the year just under $18 per ounce and climbed by 63 per cent to more than $29 in August – its highest level since early 2013. The silver price came under pressure in the spring as industrial demand fell with the closure of manufacturing plants during lockdowns to slow the spread of the pandemic. Unlike gold, the majority of silver demand comes from its physical use in industrial products. However, the price jumped in July in response to renewed buying interest from retail investors priced out of the gold market, analysts said. The white metal recorded its largest monthly price gain in July since 1979, rising by $5.58 per ounce or 29.9 per cent.

Silver price chartInvestment demand has outweighed consumer demand for both gold and silver, as jewellery sales in the first half of this year slumped by 46 per cent from the first half of 2019 because consumers were in lockdown and disposable income was reduced by job losses.

Precious metal prices fell back in August as the US dollar strengthened and the US government failed to agree on a fresh round of economic stimulus. However, analysts expect the macroeconomic environment to support further gains in gold and silver.

Gold and silver price forecast: rally to resume, lifting prices into 2021

So, what is the outlook for gold and silver future prices? Analysts point to continued economic uncertainty and signals from central banks that they will tolerate higher inflation as likely to push metals higher.

In a recent note on gold, an analyst at Danish investment bank Saxo said: “There is a clear argument that most portfolios should have a position in this versatile and multi-faceted commodity. It is more than just a defensive play or store of wealth, it is an active investment in the face of significant inflationary pressures and macro and political uncertainty. It is a hedge against Central Bank monetisation of the market. I would discourage the view that an investment in gold at this time is consensus and late. Now is not the time to overthink what is a classic thematic investment.”

Ole Hansen, the head of commodity strategy at Saxo, commented: “We maintain a positive outlook for gold, and while we may not see any significant near-term developments in real yields and inflation, the uncertainty ahead of the November US presidential election should be enough to dissuade anyone from taking profit before our expectations for a weaker dollar and lower real yields eventually may take prices higher into 2021.”

In their latest gold price update, analysts at Citibank (C) said that they are bullish on the metal tactically in the short term and structurally over the medium term. They maintain their 0-3 month price target at $2,200 per ounce and a six-to-12 month target at $2,400 per ounce. They have lifted the 2021 estimated base case gold price forecast by around $300 per ounce from an early July update, to…

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