2020 has been an outstanding year to say the least. World gold price declined to a record low in March on the back of widespread volatility related to COVID-19, but due to rising uncertainties, it reached an all-time high in August 2020.

The economic fallout of the coronavirus pandemic across worldwide markets prolonged safe haven demand for gold, driving its price to US$2,063 per ounce.

Gold’s price in August ultimately proved unsustainable, and it fell below US$2,000 shortly after. Hovering around US$1,970 in early September, its price has been declining since. Now trading in the US$1,820 range, gold appears to have maintained a floor price at about US$1,800.

News that several pharmaceutical companies are getting close to mass rollouts of COVID-19 vaccines, and worldwide vaccinations are underway has posed some difficulties for the safe haven metal, although long-term fundamentals look promising. As infections rise and global vaccine rollout near in 2021, how will global gold prices fare?

gold 4 — Gold hedges against increase in inflation

The bulls in the market are predicting that gold prices will pick up to about US$2,300 per ounce in 2021. Goldman Sachs economists are of the view that as economic activity picks up due to the recovery from the global recession, this could push up inflation in 2021 and would in turn drive the price of gold up. Therefore, gold’s safe haven nature as a hedge against inflation is expected to work against its favour in the coming year thus, the price peg of US$2,300.

In the past month, Fitch solutions suggested that the reinstatement of containment measures due to a second wave of the COVID-19 virus in Europe and the United States will dampen investor sentiments going into 2021 and therefore that should support price hikes in safe haven assets like gold.

Meanwhile, there are still other analysts who see this as a risk. Should inflation increase due to the expected economic recovery and the subsequent rise in economic activity, it would undermine the prolonged low interest rates which were set by Central Banks in response to the COVID-19 pandemic and discourage investment in non-interest-bearing assets, like gold.

These experts anticipate that, the second half of 2021 could experience a rapid recovery, which would in turn drive more investor risk appetite. Hence, that will lead to a move away from safe-haven assets- a key driver of the gold price this year as the pandemic unfolded. With these two views holding some merit, countries that are heavily dependent on gold revenues must therefore tread cautiously.

How should Ghana position itself?

As a small open economy and the largest producer of gold in Africa, surpassing South Africa in 2019, Ghana is more vulnerable to the economic shocks that occur in the world market, especially in advanced economies like the US and Europe.

On the other hand, Ghana seeks to benefit if there is a general improvement in the world market. And in this case, Ghana has gained tremendously from the rise in world gold prices in 2020.

According to data from the Bank of Ghana, Gold worth about US$4.3 billion was exported from the country between January and August 2020. Furthermore, economists at Fitch solutions expect gold production in Ghana to increase by 9 percent in 2021.

However, being overly optimistic about the reinstatement of lockdowns in the US and Europe are unlikely to trigger a further rise in gold prices, for the reason being that, worldwide vaccinations are intended to commence early 2021. If the rollout is successful, this would reduce the spate of infections and deaths from the coronavirus. It would also set the tone for an economic recovery in the coming year.

Therefore, a combination of these will dissuade the fears and uncertainties about holding other securities or assets with higher interest rates than non-interest bearing assets like gold.

Meanwhile, gold prices will still maintain the gains of 2020, but for price of gold to overly stretch to US$2,300 per ounce is quite unlikely to occur.