As the global economy recovers from the impact of Covid and societies are normalising to varying degrees, there is a lower level of safe-haven demand for gold. At the same time, the US Federal Reserve (Fed) is signalling interest rate hikes and an end to quantitative easing, which weighs on sentiment towards gold. As a result, investor demand for gold fell, as evidenced by falling net long positions on COMEX. The gold price was relatively flat for the year in US dollar terms, closing 3% down at $1 828/oz, despite volatility over the course of the year. In rand terms the gold price was up 5% for the year.

Longer term, the consequences of record-high global government debt are in unknown territory. The level of US and other developed market government debt has increased steeply due to the Covid-19 response. The Fed’s ability to increase rates and control inflation without causing fiscal pressure, a growth shock or a stock market meltdown will be a key determinant for the gold price over the medium term. This scenario would be bullish for gold.

Recent action by the Chinese government against US-listed Chinese tech companies is indicative of the underlying hostility that was more evident under Trump. While Biden is expected to be more measured in this approach to China and trade, the underlying threat of China surpassing the US as the largest global economy will prevail and therefore the geopolitical climate will remain heated. All of these developments will keep volatility and uncertainty high and provide support for gold investment demand. The medium-term outlook is positive for the gold price, and there is room for the gold price to rally further or remain at elevated levels.

The Old Mutual Gold Fund has a composite benchmark weighted 70% to South African gold equities and 30% to the FTSE Gold Mines Index, which is comprised of global gold stocks. JSE listed gold shares performed as follows over the year: AngloGold Ashanti -2%, Gold Fields 32%, Harmony Gold -5%, Pan African Resources -16% and DRD Gold -22%. The FTSE Gold Mines Index returned -3% for the year in rands.