ASX gold stocks have slumped with the precious metal since news of a promising COVID‐19 vaccine hit, but some experts believe it can still rebound to a record in 2021.
The price of the precious metal tumbled around 4% in the past week to US$1,877 an ounce. This triggered a 4% slide in the Newcrest Mining Limited (ASX: NCM) share price, 6% decline in the Evolution Mining Ltd (ASX: EVN) share price and 11.5% drop in the Northern Star Resources Ltd (ASX: NST) share price.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) climbed around 3% over the same period.
ASX gold stocks losing their glitter
Gold’s lost some of its lustre on growing confidence that the world would soon emerge from the pandemic.
It’s also been on a backfoot since media organisations declared Joe Biden the new US president while the Senate remains in Republican hands.
This means Biden will find it hard to unleash the trillions in stimulus he’s proposing – a move which will weaken the US dollar.
These factors explain why ASX gold stocks have been underperforming.
Why gold could hit new record highs in 2021
Gold may be down, but it’s not out. That’s the view of some experts who’re predicting that the safe haven asset will hit new highs in the new year, reported CNN.
The fact is, gold may have retreated but it’s still well within striking distance of this year’s peak at just over US$2,000 an ounce.
Biden’s difficulty in getting his massive stimulus passed into law may very well force the US Federal Reserve to up their quantitative easing (QE) ante too.
If the Feds pump even more money into the financial system via QE, that will weaken the US dollar and shake confidence in the world’s reserve currency.
Gold is still relevant post COVID
All this is good news for ASX gold shares and the commodity, which investors regard as both an alternative to the US dollar and an inflation hedge.
“All of the reasons for gold strength over the past few months are still in place,” CNN quoted Bryan Slusarchuk, chief executive of Victoria-based Fosterville South Exploration.
“The horse has left the barn. People are looking at gold as an alternative currency.”
Gold a good alternative to bonds
There’s another reason why gold could find renewed favour. Some believe it makes a good substitute for government bonds.
This isn’t normally the case as gold doesn’t have a yield like bonds do. But the rates on Australian and US government bonds are so low, some investors might think having some gold is a good diversification strategy to their government bond portfolio.
What’s more, it’s clear that record low interest rates will be around for years, as will fiscal and monetary stimuli.
Gold price forecast for 2021
“The safe haven trade for gold is not completely gone. We are just a crossroads where volatility is high,” Everett Millman, precious metals specialist with Gainesville Coins told CNN.
“We expect moves on both sides and a lot of headline risk.”
However, Millman is tipping gold to hit a fresh record high of around US$2,100 next year, while Slusarchuk is a lot more bullish with his prediction of US$2,500.
If this comes to pass, ASX gold stocks could outperform in 2021.