Will ASX gold shares continue to shine in 2021?

The soaring price of gold in 2020 has been a boon for most ASX gold shares. Will those tailwinds keep blowing into 2021?

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ASX gold inflation gold bull figurine standing on stock price charts representing rising asx share price

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For an innocent and rather attractive metal, gold certainly manages to stir up plenty of debate.

We can all agree the yellow metal’s had a fantastic 12 months, hitting new record highs above US$2,063 per ounce on 6 August.

On 11 December last year, an ounce of gold was worth US$1,474. Today that same ounce is worth US$1,838. While that’s down from the 6 August all-time highs, gold investors have still banked a 25% gain simply by owning bullion for the past year. Similar gains were delivered for investors holding gold-backed exchange traded funds (ETFs).

As you’d expect, most ASX gold shares rode the rally in gold prices, recording higher share prices.

But that’s the year behind. The one we can all agree on.

The hot debate now is what will 2021 bring for gold prices…and ASX gold shares?

Gold bulls

Daniel Pavilonis, senior market strategist at RJO Futures, is decidedly bullish on gold. As the Australian Financial Review reports, Pavilonis says:

We are not too far away from the highs, and once we start getting stimulus or a clearer picture of how this is all going to play out, gold and silver will continue to move higher.

Pavilonis is far from alone in his bullish outlook for bullion.

According to Livewire, Regal Funds Management CIO Philip King, sees “a lot more upside than downside in the gold price”. He also believes that, as investors eye the recovery trade, the recent sell-off in the gold price and leading gold shares is opening up some good opportunities.

His fund holds a number of ASX gold shares including Saracen Mineral Holdings Limited (ASX: SAR) and De Grey Mining Limited (ASX: DEG).

The De Grey Mining share price is up an eye-popping 1,950% since 2 January. (No, that’s not a typo.) De Grey shares reached an all time high of $1.55 on 18 September. Since then, the De Grey share price has fallen by 34%.

The Saracen Mineral share price has also dropped recently, down 26% since 9 November. Despite that retracement, Saracen shares are still up 39% year to date.

For comparison, the broader S&P/ASX 200 Index (ASX: XJO) is down 0.3% so far in 2020.

Gold bears

But not everyone agrees that gold will hold onto its shine in 2021 and beyond.

Like JPMorgan Chase & Co (NYSE: JPM).

As Bloomberg reports, JP Morgan forecasts that the growing popularity and price of cryptocurrencies like bitcoin will see less money invested in gold.

JPMorgan strategists, including Nikolaos Panigirtzoglou, wrote:

The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced… If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years.

The bank noted that, while in the short term bitcoin may be due for a correction and gold due for a lift, it’s bearish on gold longer term.

According to JPMorgan, the Grayscale Bitcoin Trust has seen inflows of almost US$2 billion (AU$2.7 billion) since October. As for gold-backed ETFs? They’ve seen outflows of US$7 billion.

It’s “just a guess”

Having heard from both the gold bulls and gold bears, we turn to Shane Oliver, the head of investment strategy and economics and chief economist at AMP Capital, a subsidiary of AMP Ltd (ASX: AMP).

Speaking at AMP’s webinar on Wednesday, Oliver said while he believes the returns from gold next year will be positive, it’s really anyone’s guess:

Like with bitcoin, I think gold will probably go up. It’s just that I think there are fundamentally sounder ways to play a global recovery than gold or bitcoin. Via more traditional industrial commodities or via share markets… Trying to project the returns [from gold or bitcoin] is just a guess. It could double in value, but it could also halve in value.

With Shane Oliver’s words in mind, investing in ASX gold shares carries a fair amount of risk, and the share prices of gold stocks tend to be volatile.

Of course, with year-to-date share price gains like the 1,950% delivered by De Grey Mining, some investors will be willing to stomach that volatility and risk in hopes of another outperforming year for gold.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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