Top banks expect a gold rally in 2021, buoyed by three major factors.
Morgan Stanley
In a paper entitled “June 2020 Edition: Bloomberg Crypto Outlook,” researchers at Bloomberg said that the same forces supporting gold could positively affect Bitcoin.
The research paper read:
“The same forces buoying gold support Bitcoin, yet the supply of the crypto is more constrained. Adoption, by default, is the primary Bitcoin metric, and our indicators remain positive.”
Bitcoin and Gold correlation over the past year.
Top financial institutions in the U.S. attribute the positive sentiment around gold to three main factors. They are: the potential devaluation of the U.S. dollar, uncertainty around the economy, and rising demand for physical gold.
Goldman Sachs analysts particularly see the price of gold potentially rising to as high as $2,000 per ounce.
Morgan Stanley: Dollar Approaching Its Peak Increases Appetite For Gold
Lisa Shalett, the chief investment officer of Morgan Stanley Wealth Management, said the dollar could be approaching its peak.
In a column published by Morgan Stanley, Shalett wrote that if the value of the dollar drops, adding gold to investment portfolios would be favorable.
“The dollar may be near a peak. If the dollar weakens, this may be a good time for certain investors to consider adding some gold to their portfolios,” she said.
But, whether the U.S. dollar (USD) will decline in the near-term remains uncertain. According to the Bank of International Settlements, USD still dominates international funding markets.
Goldman Sachs: Early Stage of Economic Recovery Historically Raised Demand For Gold
The global economy is now just starting to recover from the impact of the pandemic. Supply chains have been disrupted, and as a result, large-scale corporations across major sectors struggled to sustain their operations.
Goldman Sachs analysts said historically, the demand for gold rose amid a lack of clarity around the early phase of an economic recovery.
The bank’s analysts said:
“Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates.”
Similarly, Shalett said that if the expectations of a recession in the U.S. increases, investors can consider gold as a “buffer.”
“Some investors may feel they should reduce their allocation to equities if the odds of a U.S. recession rise, but buying some gold as a buffer is another approach to consider,” Shalett noted.
JPMorgan: Gold as a Hedge Against Uncertainty
In a note to clients in early May, JPMorgan strategists reportedly said that investors could consider gold as a hedge against economic uncertainty.
There are many variables that could cause a downturn in both the economy and the stock market. A high unemployment rate, declining business productivity, and fear of a second wave of the pandemic could cause the economy to slump.
The perception of gold as a safe haven asset makes gold a preferable option of hedge alongside other traditional assets like cash and bonds.
Other than as a hedge, strategists also predict the demand for physical gold to increase. Gold is used in various products, such as jewelry and semiconductor packages. The disturbance in supply chains, especially in areas that do not produce gold, may cause a shortage of the precious metal.
Morgan Stanley’s Fixed Income Division executive director Nicholas Thompson wrote:
“Increases in demand for physical bars and coins during times of increased uncertainty, combined with supply disruptions, can often push the cost to acquire these products higher, as seen during the COVID-19 crisis.”
Institutional Adoption of Bitcoin is Rising, While Correlation With Gold Rises
Since the start of 2020, institutional investors have been purchasing large amounts of Bitcoin through the Grayscale Bitcoin Trust.
The Grayscale Bitcoin Trust is one of the few investment vehicles in the U.S. that allow accredited investors to gain exposure to Bitcoin in a publicly-traded stock.
According to Bitcoin researcher Kevin Rooke, Grayscale added 53,588 BTC to their trust since the May 11 halving. While the figures can be inflated by “in-kind” numbers, the assets under management of the Grayscale Bitcoin Trust is at an all-time high.
The Assets Under Management of the Grayscale Bitcoin Trust (Btc).
The growing demand for Bitcoin from institutions also coincide with rising correlation between BTC and gold.
Bloomberg researchers noted:
“Increasing companionship with gold is a Bitcoin-price tailwind, in our view. At the highest-for-longest 52-week correlation and beta ever vs. the metal, the first-born crypto should continue to advance for reasons similar to gold, fueled by unprecedented global central-bank easing.”
A confluence of rising institutional adoption and demand for gold could push Bitcoin to see an uptrend in 2021, analysts suggest.
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