3 reasons why gold prices have struggled lately, according to Bank of America

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Gold prices have been weighed down by weaker physical demand for the precious metal and a “lack of interest'” from investors, according to Bank of America, which also said prices could still push above $2,000 an ounce this year.

Spot gold prices have lost about 6% during 2021 to fall below $1,800 per ounce. Gold prices climbed by roughly 22% in 2020, during which they settled for the first time above $2,000. Prices last year benefited from investors piling into the perceived safety of gold as the COVID-19 pandemic unfolded and from low interest rates set by central banks as the health crisis persisted, analysts have said.

Gold prices traded around $1,790 an ounce on Wednesday. Bank of America still expects prices to average $2,063 in 2021, a forecast it set last year. But the bank’s commodity research team in a note published Tuesday said the gold market in recent weeks has bumped up against challenges after the “furious” rally early in the first half of 2020. Meanwhile, the commodity has been “walking the fine line between inflation and rates.”

Bank of America analysts told clients to watch these three key headwinds facing the gold market:

Weakening physical demand

Gold purchases by central banks serve as a staple for the market but BofA said there have been signs of “fading” demand. The World Gold Council in January said gold purchases by central banks were about 60% lower year-over-year in 2020. Gold’s performance during the year increased reserve portfolios, leading some central banks to spot “an opportune time to obtain liquidity to support their struggling economies,” during the pandemic, said WGC in outlining factors that led to the slowdown in gold purchases.

Lackluster jewelry market

Jewelry sales have been ‘disappointing,’ the firm said. The pandemic exacerbated softness in the key Indian jewelry market and last year stoked drop in sales in China, BofA said. China is one of the world’s largest markets for luxury goods.

Investor purchases pull back

Another headwind comes from weakness in traditional physical markets that “has been exacerbated by lack of interest from investors,” according to the note. Assets under management at physically backed metals ETFs declined following “persistent” inflows during the first half of 2020. Assets under management at the vehicles in recent years have ballooned to $193 billion.

Changes in the global macro backdrop have…

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