Precious metal news: Gold demand is increasing, the effects of inflation, and three price scenarios

• Yahoo: Gold demand is increasing with the Chinese New Year
• FXStreet: Inflation is coming - and gold is grateful
• CFA Institute: Will the value of gold rise above $3,000?

Yahoo: Gold demand is increasing with the Chinese New Year

Yahoo Finance reports that physical gold demand has increased this week in China and Singapore due to the Chinese New Year. Chinese sellers are still charging about €0.40–3 over the spot price of gold to compensate for the heavy price reductions caused by the pandemic in 2020. Buying has also started to recover in Singapore.
Ronan Manly from BullionStar Singapore states that strong retail demand will continue in the coming months thanks to seasonal factors and new precious metal coin releases from major mints.
Indian demand has also been slowly growing due to, for example, wedding purchases, according to Harshad Ajmera from JJ Gold House. Local sellers have requested about €0.80 extra per ounce. Last Friday, Indian gold futures were sold at 49,000 rupees (about €550) for 10 grams, indicating a slight increase from the monthly low seen last week. Some believe that goldsmiths are waiting for the government's annual budget announcement on February 1 before making purchases. On the other hand, demand in Hong Kong has remained low, with gold being sold at a discount of up to €1.65. In Japan, sales have matched spot prices again.
Read full article in English / January 22, 2021, Eileen Soreng and Rajendra Jadhav

FXStreet: As inflation accelerates, gold thanks

Sunshine Profits' Arkadiusz Sieroń comments on the inflation developments of 2021 and explains why it is very likely to rise in the coming months and years. The increase in inflation is considered a significant tail risk, but it also presents a great growth opportunity for gold. The majority of economists have not experienced double-digit inflation since 1981, and they believe inflation has disappeared due to the generosity of central banks. Arkadiusz's analysis aims to prove their assumptions wrong.
Over the past ten years, inflation has remained below the 2 percent target set by the U.S. Federal Reserve, and the inflation rate even decreased during the U.S. pandemic situation and restrictions. However, Arkadiusz believes the current inflation risk is greater than even after the Great Depression: First, it should be noted that banks have weathered the current crisis relatively well. Their liquidity has remained high, allowing banks to freely issue loans.
Secondly, consumption has not decreased due to low incomes or debt repayments, but because consumers have stayed at home. After vaccination, many consumers may start a spending spree and overwhelm supply, which would drive prices up. After returning to normal, the private sector will not be short of cash.
Thirdly, the era of low inflation caused by globalization is coming to an end, at least according to Charles Goodhart and Mano Pradhan. There are no large states left in the world waiting to access weakening international economic markets. Fourthly, both politicians and central banks have begun to slip. For example, the U.S. Federal Reserve has announced that it will tolerate exceeding inflation expectations for the time being.
Based on this, it can be concluded that inflation will return in the coming months. The price of gold benefits from this, as the inflation risk supports its demand as a safe-haven asset.
Read full article in English / January 22, 2021, Arkadiusz Sieroń

CFA Institute: Will the value of gold rise above $3,000?

Why does the price of gold generate so much discussion? It does not produce profit or cash flow, which makes it impossible to determine its intrinsic value. In this article, Yvo Timmermans and Paul van den Noord explore the historical backgrounds of gold price fluctuations and predict three possible scenarios for gold price development in 2021 and the future based on their long-term equation.
To anticipate gold price fluctuations, it is essential to understand the developments that led to the current situation: Gold began an 11-year bull market in 2000 when the dot-com bubble burst. The rise was also accelerated by the terrorist attacks in 2001 and the U.S. wars in Afghanistan and Iraq. The metal's ascent only ended with the European debt crisis. Gold then entered a downward correction phase: Greece teetered on the brink of bankruptcy, and the future of the euro was uncertain, while the U.S. economy approached full employment. However, after the oil crisis in 2014 and the aid packages imposed on Greece by Europe in 2015, liquidity concerns eased, and gold began to rise again.
Gold's second bull market lasted until 2020, and there seems to be no end in sight. Europe is slowly moving towards economic union, while the United States struggles with the COVID-19 pandemic and unrest. Currently, there appears to be no inverse correlation between gold and the dollar, making the current rise different from previous ones. The increase in value reflects investors' hesitation, which began even before the pandemic. These fears may stem from Brexit and the ongoing rise of populism worldwide—a fear that the current world order is shaking.
But how will the situation develop from here? The inverse relationship between gold and the dollar is valid in the long term, and the article presents three scenarios for how the price of gold will evolve: The first scenario assumes that there will be no changes in the M2/GDP ratio or the dollar index, and they will remain at previously significant levels. The price of gold will increase slightly to around €1,560 and stabilize. The probability of this scenario is low if the growth driven by monetary financing continues as expected.
The second scenario predicts continued currency growth. The money supply to GDP ratio has generally increased by about 1% per quarter, and if this continues in 2021, the value of gold could rise to €1,975 by Q4 2021. This scenario seems likely or even conservative, as current money printing is likely to accelerate further.
The third scenario predicts a weak dollar and very valuable gold. The dollar index has strengthened somewhat, but the upward trend may reverse due to the pandemic and could fall to levels similar to those of 2008 by Q4 2021. If monetary financing continues, a gold price of €2,470 per ounce is very possible. Overall, gold appears to have very few risk factors, and its value is expected to grow somewhere between €1,560 and €2,470 over the next year and a half. full article in English / 11.1.2021, Yvo Timmerman ja Paul van den Noord 

This is Jalonomi's weekly review of interesting precious metal news from various sources around the world. Our goal is to provide the reader with a concise and quick-to-read overview of the news on a weekly basis. We particularly focus on news related to investment gold.