The year of the pandemic put two commodities under the spotlight, but for different reasons. Gold prices hit an all-time high in August, while crude oil slipped into negative for a day in April, when demand crashed and inventories soared.
Both oil and gold have seen much volatility this year. Oil prices started 2020 at over $60 a barrel, dipped to the low teens in April – with front-month WTI Crude futures settling one day at a negative price – and rose to $40 in the summer, staying rangebound since then. The crash in demand pushed oil lower, while increased uncertainty over the economic and oil demand recovery, as well as the fears of a second COVID-19 wave, pushed investors to seek safe havens such as gold, driving the precious metal’s price to an all-time high of $2,075 an ounce last month.
The wild rides in the two commodities could represent buying opportunities, analysts argue, expecting oil and gold to rise in the medium term.
For oil, the uptrend may not come as soon as it could in gold, because of the heightened concern about the stalled demand recovery. Still, investment banks and analysts expect prices to increase from current levels over the next one to two years, especially if an effective vaccine hits the markets in 2021.
For gold, low or negative interest rates, continued economic stimulus, and the perception that gold is a hedge against uncertainty about the economy and the upcoming U.S. presidential election are expected to drive prices higher.
Alissa Corcoran, Director of Research at Kopernik Global Investors, told MarketWatch’s Myra P. Saefong that the short-term volatility in commodities could be an opportunity instead of risk.
Corcoran told Bloomberg Radio this week that “gold still has way to go” and could likely hit $5,000 per ounce. Even if gold does not go anywhere, mining companies still have upside because they are now trading 50-60 percent lower than they were in 2011 when gold was at levels similar to today’s, Corcoran said.
Other analysts are also bullish on gold, expecting prices to hit $3,000 and even $5,000/ounce in the medium term. Bank of America Merrill Lynch expects gold to hit $3,000 by early 2022 while Citigroup and billionaire Thomas Kaplan, founder of New York-based asset management firm Electrum Group, believe that $5,000 is in the crosshairs.
On Thursday, spot gold prices hit their highest level in more than a week at $1,956, on weaker U.S. dollar and unchanged policy from the European Central Bank (ECB).
“In the past few weeks, the commodity has been directionless but more recently it has been pushing higher, and while it holds above the 50-day moving average at $1,916, the bullish move is likely to continue,” David Madden at CMC Markets said.
“Overall, the market remains rangebound but a record run in gold being accumulated via ETF’s highlights the strong underlying demand that is likely to continue as long the weak dollar/rising inflation/stimulus themes continue to be the focus. Local resistance at $1950/oz with a break opening a move to $1977/oz,” John Hardy, Head of FX Strategy at Saxo Bank, said on Thursday.
Meanwhile, crude oil prices have seen a correction in recent weeks, as prices adjust to weak fundamentals, Saxo Bank’s Head of Commodity Strategy Ole Hansen said.
“We do not believe that we will see a new dramatic sell-off in crude oil but have to accept that the coronavirus and doubts about the timing of a vaccine may continue to delay until next year, the recovery back towards $50/b on Brent crude oil,” Hansen noted.
Near-term prospects in demand recovery are not constructive for oil prices, but analysts believe that oil could move at least $10 higher next year.
Goldman Sachs, for example, expects Brent Crude to reach $65 a barrel in the third quarter of 2021, although it could end the year lower, at $58 a barrel.
Many uncertainties about global economic growth and oil demand recovery are set to keep oil prices subdued in the short term but support a rally in gold as a safe-haven asset class. For investors, this year’s volatility in the two commodities may not be a bad thing.
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