2020 proved to be a positive year for gold with investors rushing to the long-established haven asset as the coronavirus pandemic triggered an economic and health crisis, but what are going to be the main market drivers for 2021?
After the black swan event dominated 2020, the lingering effects of coronavirus are still very much present and continuing to pose downside risks to global markets. We can certainly not exclude new, unpredictable risks: another black swan. All we can do is to take a look at those factors that we can predict. Among them there are various that could boost stock markets.
First of all, central banks will likely stick to their ultra-expansive monetary policies. Ultralow interest rates will support the appetite for stocks as investors seek higher yields. This could generate some distortion and could exacerbate rallies on some stocks but at the moment there is no clarity on when, or even if, this will end.
Moreover, after the plunges in GDP that most countries have suffered in 2020, there are expectations of a sharp recovery in 2021. The majority of macroeconomic data has indeed signalled a recovery in the second half of 2020 and most analysts are expecting this trend to continue.
Another positive element is the likelihood of a de-escalation in trade tensions. The election of Joe Biden as the next US president improves the chances of a smoother relation between the US and both China and the EU. And finally, after almost 5 years of debates and discussions, Britain and the EU have agreed the terms of their split. A relatively friendly and constructive post-Brexit partnership between the two blocs would certainly benefit both sides and would help to boost optimism on financial markets.
These factors, in conjunction with any potential fiscal stimulus, will be crucial for the market in 2021. Their development holds the key as to whether a sharp recovery is indeed possible in the next 12 months. Black Swan permitting, of course.
