In 2021 the demand for precious metals, especially gold and silver, but also platinum and palladium, was generally strong across almost all sectors of the market, with the main exception of exchange-traded gold funds like GLD, which saw substantial outflows.
Overall, according to the World Gold Council, gold demand was up 10% for the year, rising sharply in the last quarter of 2021. This increase was driven by demand for jewelry and in the technology sector coupled with central bank gold buying that was much higher than in 2020. However, investment demand was mixed as investors were torn between concerns about inflation and rising yields on bonds.
At the same time, it was a year during which the price of gold and silver was unusually stable. In contrast, other markets, from cryptocurrencies to equities and others, were very volatile. That volatility arose from the introduction of COVID-19 vaccines at the year’s start, coupled with a rise in cases later in the year and the impact both eventually had on the economy. The average price of gold in 2021 was $1,799 an ounce, a decline of 4% compared to the start of the year but still 2% higher than the 2020 average.
Analysts attribute this price stability to the fact that from summer 2018 to summer 2020, gold rallied by 80%, from a low of $1,167 to a high of $2,089. Following that kind of sharp increase, a period of consolidation is often seen (as it was, for example, after gold rallied in 2004), according to The Royal Mint.
2021: The Year in Precious Metals
The year opened with most analysts expressing a rosy view about the outlook for gold in January of 2021. This optimistic view was the result not just of the rollout of vaccines for the virus but also because the turbulency of the Trump presidency was being replaced with a new president, Joe Biden, who many thought would have a calming effect on markets.
Precious metals analysts at CitiBank, HSBC, and other banks predicted that gold would rise above the critical $2,000 threshold in 2021, perhaps even reaching $2,300, according to Metals Focus (referenced in Royal Mint’s “2021 Market Roundup”). Those views were based on rising unemployment rates in most major economies and the prospect of increased fiscal spending, especially in the U.S., based on Biden’s plans for a sizeable COVID relief package and infrastructure legislation.
February was dominated by an incident that received a lot of press coverage in which investors in shares of GameStop used the Reddit web forum to drive the price from $5 a share to $400 and then moved on to try to do the same thing with silver. This movement did result in silver sellers seeing a considerable rise in demand. For example, The Royal Mint saw sales rise seven times their average daily amount and saw thousands of new buyers.
While this move temporarily pushed silver to almost $30 an ounce, by the end of the month, it fell back to $26. The effort ultimately failed because silver is a much larger market that generally can’t be manipulated by a relatively small group of small investors. Platinum also rose to $1300 – its highest level in six years due to an increase in industrial demand, resulting in tighter world supplies of the white metal.
By April, improving economic news worldwide led to a sharp rise in gold imports in the spring compared to the prior year. This increase was driven mainly by the increasing demand for gold jewelry as buyers had more disposable income, and countries that had been under lockdowns the prior year began to open up.
May was a volatile month, with gold hitting a low of $1779 and a high of $1904, which was the second time in 2021 that it reached the $1900 level.
While demand for gold in China, which at the time had very few cases of the virus, remained strong, in India, the virus was not well under control, which harmed demand for gold and even led sellers to discount the price by $2 an ounce.
The Russian central bank reduced its holdings of dollars and increased its holdings of gold. And in addition to those increased imports of gold, it also continued to ramp up its domestic production of the metal, making it now second only to China as a gold producer. Thailand, Turkey, and Brazil also increased their central banks’ gold holdings.
June was a challenging period for cryptocurrencies after China cracked down on the industry, resulting in a $400 billion loss of value in that market just three days after Chinese authorities ordered crypto mines to shut down. As inflation concerns rose in June, Fed chair Jerome Powell said the bank would consider scaling back its bond purchases and also predicted the first interest rate increases in many years would occur in 2023.
August saw the gold price temporarily dip by as much as 5%, which further boosted demand. However, the price recovered by the end of the month, especially after Powell gave a dovish speech on August 27 that suggested the Fed might hold off on its plan to taper monetary stimulus.
Gold still faced headwinds, especially in September, which traditionally is an excellent month for the metal, due to headwinds from a strong dollar and strong equity markets as well as rising yields on 10-year Treasury bonds.
Inflation concerns supported intense price action in gold and silver in October and November. Still, they also led to more talk from Powell about starting the tapering program and suggested that the low-interest-rate environment would end soon.
By the end of November, metals received a boost from news of the omicron variant, which led global equity markets to fall by about 2%.
By December, the Bank of England reported that inflation in the U.K. had reached 5.1% — the highest in a decade, which surprised market watchers. In the U.S., the inflation rate hit 6.8%, the highest since 1982.
Conclusions
Overall, the price of gold in 2021 fluctuated between a low of $1,683 in March and a high of $1,957 in January. Some analysts think 2022 could see gold break higher after a year of consolidation, but, as The Royal Mint stated in early 2022: “The current economic situation makes it almost impossible to predict what will happen to the price of gold, or other precious metals, in 2022.”
