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Gold - Buy or Sell in 2021?


bigtim92

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I bought into a Gold ETF last week, but am having second thoughts, after reading 2021 outlooks from the likes of Goldman Sachs and Morgan Stanley. I'll list the arguments for and against below. Please share your thoughts:

Arguments for:
Goldman Sachs expects that the price of gold will reach $2,300 per ounce by the end of 2021 (20% higher from current prices) because of concerns over rising inflation. Source: https://www.reuters.com/article/us-commodities-research-goldmansachs/goldman-hikes-12-month-gold-price-forecast-to-2300-idUSKCN24T1QA

Arguments against:
As expectations of future inflation rise, so do Treasury rates. In fact, the 10-year Treasury burst through 1% last year (after the Democrats took the Senate). Gold has historically been inversely correlated with long term rates. Interestingly, Morgan Stanley is bullish on inflation in 2021, and believes it could come sooner and faster than most expect, perhaps even as early as Q1. This would dampen the price of gold in my opinion.

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The big boys promote stuff to the public and are most likely the professionals providing the supply so be careful of that fact - Even old Warren Buffett bigged up Silver years ago whilst he was dumping his holding!

I'm not a fundamental Investor - Here's my thoughts from a slightly differing angle that may help you:

EVERY market works out to cycles, I can't work out Golds cycles because it was only freely traded since 1970's and I need decades of price data to accurately pick out the dominant cycles, BUT......

I do have the stock market and UK Bank of England Base Rate price data going back centuries

Stock market will be going upwards until 2034, with this it inflationary by nature, this will also drag interest rates upwards too

I'm expecting BoE rates to increase to normality (av since 1600 is circa 5.99%) within the next 1-3 years.  The reasoning for this is as follows:

  1. The stock market is following a certain cycle [not disclosing this] - but it is safe to say that since 2000 the stock market REPEATED the 1929 cycle - In 2012 I satisfied this thinking and confirmed it in 2017
  2. Look at what the BoE did with rates in 1929-1951.  The same was expected from 2000-2022 - that HAS happened (if back in 1929-1951 they had thought of QE they'd of done it) 

Everyone out there has an opinion - the vast majority are simply wrong, so to conclude market will go upwards (USA markets) this will affect the UK markets too to some degree and with that Inflationary direction it should once the int rate cycle ends its deflationary cycle [soon] int rates should head back up to the 5-6% level 

Depends if the above does happen how it will affect the price of gold

I wrote the chart below to a friend - which recent price action sort of contradicts my thinking - at the time I was looking at the chart and comparing it to the stock market cycle which up to 2015 complied perfectly, so the most recent price action is either a one off blow off rally or there's more to the cycles than though - If I had 100 years of price date for freely traded gold I'd be able to work out the dominant cycles exactly, so for the time being for me its just a work in progress to then hand down to my children/grandchildren in a few decades time assuming i live that long lol

So in the chart below I was comparing the INFLATIONARY stock market cycle that ran from 1982 to 2000 and then the DEFLATIONARY stock market cycle that ran 2000 to 2017

Hence the lacklustre price action of gold in a stock market and int rate inflationary period and once the deflationary cycle kicks in gold price starts to rise - It "might" not be doing that, it might be complying to something else which with limited historical available price data a reliable or accurate forecast cannot be made

DISCLOSURE: I do have an active open short position in this market 

Hope helps a little

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