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Will gold lose its luster during 2021, or will it rise again?

Gold prices made a strong jump during the year 2020, exceeding levels of $ 2,000 an ounce, and was able to achieve an annual increase of about 24%, but gold prices returned to decline by the end of last year and so far, and during the day they reached levels of $ 1,730 an ounce again. Because of these declines, which were matched by a noticeable rise in digital currencies, specifically Bitcoin, speculation has increased about the continued decline in gold prices, with other assets replacing the yellow metal, but it seems that these expectations are unlikely.

Since the beginning of this year, gold prices have lost more than 9% of their value, despite their high levels of $ 1,900 an ounce during last January, but they fell again, and even fell below levels of $ 1,680 an ounce.

Despite expectations that the approval of the US stimulus package will increase pressure on the moves of the US dollar in favor of gold prices, the reality was contrary to speculation as the US dollar continued to rise and gold prices continued their losses, ignoring concerns related to high inflation rates.

In this regard, it should be mentioned that gold is often used to hedge the risk of inflation, as investors consider it a store of value, unlike paper money, and in light of investors’ attempts to avoid the risks of high inflation, the appetite for safe-haven assets, which includes gold, increases.

So why is the situation different this time?

Despite the approval of the $ 1.9 trillion stimulus package, and a 1.7% rise in inflation rates in February compared to 1.4% in January, members of the US Fed continued to calm the markets over the high rates of inflation. Thus, gold prices continued to trade at low levels compared to 2020 levels, but they are still at their highest levels in 2019.

Fear in the markets is likely to be the main reason for citizens to stop spending despite the US administration and the US Federal Reserve pumping more trillions of dollars into the markets, but stopping spending due to the Corona crisis, suspension of travel, or fear of the pandemic returning again make more Of people would rather keep cash than use it.

In the chart below, we see that the spending index in the United States has returned to close to its usual levels after a strong decline at the beginning of 2020 with the outbreak of the Corona crisis and then a jump during the second half of 2020.

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