7 Factors Driving the Gold Price in 2021

There’s only one sure way to make money by investing: knowing in advance which way prices are going to move. But since that’s impossible, we have to settle for the next best thing, which is to make educated guesses about price moves. Investing isn’t about guessing out of the blue, it’s about doing your research, determining what investments best suit your needs, and acting accordingly.

For many investors, gold is playing an increasingly important role in their portfolios. Gold has long played a role in protecting investor assets against inflation, currency devaluation, and financial turmoil. And today it plays that role again.

Many investors choose to invest in gold through a gold IRA, which allows you to invest in physical gold coins or bars while still enjoying the same tax advantages as conventional tax-advantaged retirement accounts. You can even roll over existing retirement assets from a 401(k), 403(b), TSP, IRA, or similar retirement account into a gold IRA, allowing you to protect your existing retirement savings and take advantage of gold’s price growth.

Gold has already made great gains in 2020, up over 20% this year, but it still has a long way to run. Here are seven factors that will contribute to the gold price in 2021.

1. Economic Stimulus

While Congress may be facing difficulty coming to an agreement over further fiscal stimulus, it seems to be more a question of when, not if, a stimulus package will be passed. With the potential for trillions more dollars being pushed into the financial system, more stimulus should result in a higher gold price, particularly as investors nervous about the future move more and more of their money into gold.

2. Rising Inflation

The Federal Reserve has announced that it intends to allow inflation to rise above its 2% target rate, and is in fact trying its hardest to stimulate inflation to rise higher than 2%. The danger, of course, is that it could let inflation get out of control, which could harm the economy and investors.

Gold has traditionally been a prime investment asset during times of high inflation, as it maintains its value exceptionally well in the face of inflation. Now that investors are beginning to expect higher inflation in the near future, their demand for gold should continue to rise.

3. Weakening Dollar

Trillions of dollars of money was created out of thin air by the Federal Reserve this year as part of the federal government’s response to the economic crisis caused by state lockdowns. And each dollar created decreases the value of existing dollars. With the potential for trillions more dollars of stimulus coming in the next year or two, the dollar certainly won’t be getting any stronger, and it could end up weakening quicker than anyone expected.

Investors who don’t protect their investments against a weakening dollar could find when they retire that their dollars don’t go as far as they expected. And that’s why so many investors are turning to gold to protect their wealth, as it maintains its value and outperforms the dollar over the long term.

4. Volatile Markets

The past few years have seen unprecedented volatility in stock markets. They have hit all-time highs on numerous occasions, while also seeing pretty significant corrections. The COVID-related crash in early 2020 saw markets falling around 35%, wiping out trillions of dollars of investor wealth.

That crash paled in comparison with the 2008 crisis, when markets lost 55%, but the next real crisis could be even bigger than 2008. This year’s COVID-related volatility was largely self-inflicted, the result of state government actions. But the next crisis will likely be the result of structural problems that have been brewing for over a decade, and no amount of quantitative easing will be able to paper over its effects. Investors who haven’t prepared for that could lose out in a major way.

5. Weak Economy

With millions of Americans still out of work, businesses around the country being once again subject to lockdowns, and the economy still nearly 10% below its output level at the beginning of the year, we’re nowhere close to recovering from the COVID crisis. How long it will take to recover is uncertain, not least due to the unpredictability of what state governments are going to do. But as long as the economy remains unstable and unpredictable, demand for gold should continue to grow.

6. Low Interest Rates

The low interest rate environment in which we find ourselves today is the result of over a decade of central bank monetary stimulus. Trillions of dollars worth of quantitative easing, asset purchases, and deliberate attempts to keep interest rates artificially low succeeded in that aim. But the result was an investing environment that afforded few good growth opportunities for investors.

Stock market growth over the past two decades has been below trend, and traditional investments like savings accounts or money market accounts offer returns well below inflation, making them guaranteed losers in terms of real returns. Gold has been one of the few shining lights, nearly doubling the performance of stock markets since 2001. And as long as interest rates remain low, gold should remain an attractive investment asset.

7. Rising Investor Demand

With everything that has gone on as a result of the COVID crisis, one would have expected investor demand for gold to skyrocket this year, and it did. Whether it was demand from exchange-traded funds or demand for physical gold coins and bars, gold demand from investors rose significantly in 2020. Will it continue that same growth in 2021?

Certainly gold should remain in a bull market next year, and investor demand should remain high. The weaker the economy gets, the greater demand for gold should grow and the higher the gold price should rise. All the factors seem to be lining up just right for a bull run that should eclipse the one from 2008-2011. Those investors who prepare themselves today could end up reaping the rewards tomorrow.