Gold Mid-year Outlook 2021: What Are the Risks and Opportunities?

Published on: July 13, 2021
Author: Caroline Kong

After reaching a new all-time high of USD 2,074/oz in August 2020, gold has lost some of its steam, with prices sitting comfortably in the USD 1,800/oz range.

What are the factors that are putting pressure on gold prices in 2021?

The US fed has been signalling that rate hikes could be coming sooner rather than later. June’s FOMC meeting ended with officials saying that two rate hikes were possible as early as 2023.

And despite continuing Covid fears, the rapidly spreading Delta variant, and cooling global recovery, stock market performance has been strong. The S&P500 has posted close to 40% gains year-over-year as investors pour money into equities at unprecedented rates.

Numbers for The US Department of Labour show that more US workers filed for unemployment benefits this week than expected. While forecasts were calling for a drop in jobless claims, actual claims were up by 2,000 to 371,000.

However, a weakening US dollar and inflation fears have continued to support gold prices, although a slight rise in US Treasury yields on Friday may have tapered momentum.

With spot gold holding on to gains and climbing slightly to $1,810 and the gold outlook for 2021 cautiously optimistic, opportunities are emerging for investors with gold companies. Gold stocks are looking cheap right now, meaning investors can add gold companies to their portfolio at a deep discount before a potential gold price rally.

Historical Jobless Claims and The Impact On Gold’s Outlook In 2021

Last week’s surprise labour market data showed that more Americans applied for unemployment than previously forecasted. While experts were expecting claims to fall to 345,000, actual jobless claims rose week-over-week.

Data from the Department of Labour shows claims were up by 2,000 from the previous week, climbing from 371,000 to 373,000.

However, the news doesn’t appear to have impacted gold prices very strongly, with spot gold holding on to previous gains and posting a moderate increase.

Worse than expected jobless claims for the week ending July 3 could be a signal that US economic recovery is losing some of its momentum.

A Weaker Dollar and The Delta Strain Kept Bullion Near Peak

The US dollar continues to struggle. The dollar index fell 0.3% last week while gold prices spiked to their highest peak since June, hitting $1,818 before reversing gains and finishing the week at $1,810.

The weak dollar combined with fresh worries over the increasing spread of the Delta variant and higher than expected US jobless claims have kept spot gold close to its 3-week highs.

Is There Any Opportunities from Risks for Gold in 2021?

What happens with interest rates is one of the most significant drivers of stock market performance. And gold is no exception.

But, while interest rates are typically negatively correlated with gold prices, in the current environment, the impact of rising interest rates on gold prices may be offset by other economic factors.

Expansionary fiscal and monetary policy intended to support economic recovery can also spur longer-lasting unintended side effects, leading to inflation and currency debasement. These financial concerns could steer more investors towards safe-haven assets like gold, even as interest rates climb, resulting in a demand-driven increase in gold prices.

With cheap gold stocks offering the potential for significant upside, strategic investors may look to add gold companies to their portfolio as a leveraged buy on climbing gold prices.

Pay Attention to Gold Demand and Supply

In a supply-demand driven environment, gold exploration companies like Newrange Gold Corp (CVE: NRG) (OTCMKTS: NRGOF) (FRA: X6C) could provide investors with significant upside potential.

The company recently announced follow-up diamond drilling of four core holes at its flagship Pamlico Project resulted in visually significant oxide mineralization and may have led to the discovery of an unknown extension of the historic, high-grade Pamlico Mine.

Before the most recent discovery, reverse circulation of hole P21-115 had previously intersected several high-grade structures assaying up to 22.35 grams gold per metric tonne (g/t Au) within an overall intercept of 123.5 meters averaging 1.13 g/t Au.

“We are very encouraged by the four follow up holes on this new zone, and especially with the apparent correlation with the Pamlico Mine mineralization,” Newrange Gold CEO Robert Archer said in a statement.

First discovered in 1884, the Pamlico District Nevada is located in one of the most desirable mining districts in the world, known for its high-grade deposits. Newrange development of the Pamlico Project suggests that past production may have been limited to the exposed manifestation of a much more significant, mostly buried, gold-bearing system.

Disclaimer: NAI is being compensated for this content. Materials contained in this content are for information purposes only and is not intended to constitute an offering of securities in any jurisdiction. Nothing on this content should be construed as an offer, solicitation or recommendation to buy or sell products or securities.

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