Gold outlook for Q1 2021: Into unchartered territory

Forecast beyond Covid-19

In Q1 2020, asset markets were whipsawed. Demand destruction from the sudden stop in global activity as countries deal with the Covid-19 pandemic led to abrupt declines in cyclical asset prices from equities to credit to base metals and oil.

There appeared nowhere to take cover. Even gold was not initially immune to the selling pressure. But that was for a very specific reason: the large equity drawdowns gave rise to a thirst for liquidity. Steep declines in risk assets led to investors selling gold to generate funds to meet margin calls. That was testament to gold's role as a liquid asset. Now that central banks have injected unprecedented amounts of liquidity into the system and opened up large swap lines, the selling pressure on gold appears to have assuaged and at the time of writing, gold price is rising and has s...