Despite their individual growth rate (or lack thereof), assets across all markets usually share one pattern in common: growth followed by retracement.
Strong performing assets go on to see continued growth after a retracement and will continue to follow this up and down pattern. In short, nothing goes straight up.
The same holds true for gold.
The precious metal that has been around for thousands of years experienced new highs in 2020, which to any investor seeking shelter from rising inflation rates would be a great sign.
Although the price of gold has since retraced, many savvy investors, analysts, and investment firms believe that gold is just getting started on its run-up to even higher highs.
One of the largest multinational investment banks and financial services globally, Goldman Sachs, is confident that gold prices will continue to rise in 2021 and onward.
The bank is projecting gold prices at $2,000 an ounce over the next six months and also said it is too early for Bitcoin to compete with gold for safe-haven demand.
Although many factors support their projection, there are 3 main reasons that stand out to us: inflation, the weakening of the U.S. Dollar, and emerging market demand.
Inflation is undoubtedly on the rise.
If one chooses to ignore the signs, like the rising cost of consumer goods, lumber, and gas, well, then maybe a word from one of the most famous investors ever, Warren Buffett, would gain their attention.
Mr. Buffett vocalized his thoughts on the current inflation situation at hand at Berkshire Hathaway’s recent annual shareholder meeting.
“We are seeing very substantial inflation. It’s very interesting. We are raising prices. People are raising prices to us, and it’s being accepted,” Buffett stated in regards to the multiple companies Berkshire owns spanning across various industries.
The dollar is weakening; rising inflation and the increased cost of goods are vital signs of this.
The U.S. Dollar index is revisiting lows not seen since 2018, and if it is unable to sustain the current levels, we could soon revisit 2014 levels followed by 2008’s levels.
Historically, a continuing dollar decline may very well have good implications for gold.
Emerging markets have not only resumed but actually increased their gold buying activities this year compared to previous years. “We see a strong rebound in EM gold demand which should support higher gold prices through the wealth effect,” Goldman stated.
Could this be gold’s consolidation period before the next boom?
Goldman Sachs thinks so.