The prices of gold have been making volatile see-saw moves in the past few days amid growing speculations about the nature of economic growth projections and interest rate policy. Gold hit highs of above $2,070 in August 2021 but has so far failed to sustain significant gains in 2021 despite the zero interest rate policy.
This underperformance in the gold market is blamed on strong economic growth forecasts that continue to shift the investors’ focus towards the more risky assets like cryptocurrencies and stock markets.
Moreover, data compiled by various analysts indicate that in 2021, BTC trading volume accounts for nearly 40% of the average daily gold trading volume. It is a considerable percentage bearing in mind that bitcoin’s market capitalization accounts for only 9% of gold’s $10.99 trillion. It is a straightforward indicator that the investors are, for now, more speculative about the flagship cryptocurrency.
Gold Predicted To Trade Between $1,700 And $1,800
The price of gold is currently hovering between $1,700 and $1,750 after it started the year around $1,900. This drop is supported by economic growth trends and coronavirus vaccine discovery.
The Federal Reserve projects positive economic growth trends for the year, with the United States gross domestic product is expected to reach 6.5% compared to the previous guidance of 4.2%. Additionally, the Fed expects 3.3% GDP growth for 2022 compared to the previous projection of 3.2%.
Despite these strong economic projections, the price of gold might receive support from central banks’ buying strategy. Besides, strong trends in the jewelry markets may also support the gold prices.
The luxury gold jewelry demand dropped considerably in 2021 as a result of higher prices and lockdowns. Global Head of Commodities Research at Citigroup, Edward Morse, said:
“We think this is going to settle between $1,700 per ounce and $1,800 per ounce range where it has been trading recently. It may go down a bit. We believe that central banks, particularly in emerging markets (EMs), are going to be increasing their gold holdings just as they were increasing them over the course of the ten years before the pandemic made them a little bit too expensive for EMs central banks.”