Gold predictions 2022

Gold predictions 2022

- Gold price dropped from $1,783.90 an ounce at the end of October to $1,763.90 on 3rd November, as the US Federal Reserve indicated in a statement that it would “begin reducing the monthly pace of its net asset purchases by $10bn for Treasury securities and $5bn for agency mortgage-backed securities”.

- Gold price moved up to a 5 month high of $1,872.80 an ounce on 17th November, as the Fed indicated that it would not rush to raise interest rates. The gains were accelerated as the Bank of England decided against raising its interest rates, against expectations.

- A 31-year high in the US inflation rate in October 2021 at 6.2% added further support to gold as an inflation hedge.

- However, the gold price subsequently dropped back as the US dollar strengthened in response to stronger US retail sales, and a rise in US Treasury yields following the renomination of Federal Reserve chairman Jerome Powell for a second term.

- The market found support towards the end of November around $1,780 an ounce, close to its 50-day and 200-day moving averages as a new Covid-19 variant emerged. But the price slid lower to $1,776.50 on 30 November, and continued to decline into early December, falling to $1,762.70 on 2 December.

- Global exchange-traded funds (ETFs) invested in gold saw their first month of inflows since July, and central banks in developed markets added to their gold reserves for the first time since 2013, noted the World Gold Council (WGC).

- Changes in net long positioning on the Comex exchange reflected the price performance. The WGC commentary said: “During the first half of the month, net long positions rose to 882t (US$52bn), the highest tonnage level since early August 2020, around the time the US$ gold price hit a record US$2,067/oz. However, Managed Money traders reacted to Powell’s renomination by cutting their positions to 731t (US$42bn) by the end of the month, in line with the price decline.

Gold remains heavily influenced by investors’ continued focus on the path of inflation (in the US, but also globally) and the Fed’s and other central banks’ potential reaction to it. In contrast, dollar strength was a headwind in November, acting as a drag on gold’s performance, but not enough to outweigh inflation concerns.” Gold had fallen by more than 5% since the end of 2020, when it was trading at $1,895 per ounce. Some market observers suggested that gold had not responded to the above-target inflation levels seen in various countries as would usually be anticipated, as some investors shifted to using cryptocurrencies such as bitcoin as a store of value and inflation hedge.

“While gold will clearly remain an established safe-haven asset in times of economic turmoil, it’s clear that younger generations (and increasingly the older ones too) are now looking to bitcoin to serve the same purpose in a digital era.” Even after its recent sell-off, bitcoin is still showing substantial double-digit gains since the end of last year while ether has very healthy triple digit gains.

Forecasts for the gold price outlook next year from different analysts vary, based on how they expect the market to respond to inflation and central bank policy:

1.Technical analysis from brokerage firm Zane on 8th of December noted that “key points on the upside in gold are the 200-day moving average at $1,796.25 and then again at $1,800”. But, “even though we leave the bull camp with a minor edge, the precious metals markets lack a definitive bullish fundamental storyline and lack upside momentum. Furthermore, recent gains have been forged on extremely low trading volume and almost no change in open interest,” the company’s analysts wrote in a note to clients.

2.Analysts at Australian bank ANZ expect gold to find support in the first half of next year but undergo downward pressure later in the year when the Fed is expected to raise interest rates. They wrote in their latest commodity report: “As ultra-loose monetary policy nears an end and stimulus starts to shrink, support for the precious metals sector is likely to wane in 2022. Despite more than a year of US Federal Reserve discussions around tapering, higher inflation and negative real interest rates have protected the downside of gold prices. “Comparing the current business cycle to previous ones, inflation numbers are way higher and look sticky. This should keep real interest rates deep in negative territory in 2022. The prospect of sustained higher inflation could lift hedging investments in gold in the short term, and that could increase the prospects for an earlier hike and faster tapering. “On the fundamentals side, a strong rebound in physical demand mitigated heavy liquidation in ETF holdings this year. We estimate demand losses will be limited at 390t due to strong physical demand offtake in 2021 In 2022, physical demand is likely to be constructive with jewellery demand growing by 5%y/y to 1,920t and central bank purchases staying in the range of 480–500t. “We believe that, despite reversing US break-even inflation, negative real interest rates could keep the gold price near USD1,800/oz in H1 2022. More downward pressure is likely to build after the Fed starts hiking interest rates in mid-2022. We target gold prices to end the year at USD1,600/oz.”

3.Traders at Canadian investment bank TD Securities have opted to take profits on their inverse-vol weighted long-short gold/silver position in expectation that it could shed value, they said this week. Analysts wrote: “Gold prices have repeatedly failed to remain above the threshold for CTA long acquisitions. This could suggest that some with noteworthy selling flow has been offered against CTA purchases, particularly when we consider that the Fed is set to embark on an accelerated tapering schedule. “Sentiment across precious metals remains pervasively negative, as highlighted by months of continued liquidations of ETF holdings. With inflation prints expected to remain elevated in the early months of the year, the market's pricing for Fed hikes could still become more aggressive, but we expect that it will ultimately prove to be far too hawkish. ”They added: “In fact, with both an accelerated taper and more than three rate hikes already priced in for 2022, the balance of risks for gold positioning remains to the upside, as geopolitical risks and virus risk could catalyse a positioning reshuffling.”

4.ABN Amro’s gold price prediction for 2022 is bearish, expecting the precious metal to average $1,500 and fall to an average of $1,300 in 2023.

5.Scotiabank’s gold forecast sees a move back above the $1,800 level to average $1,850 in 2022 but decline to $1,700 in 2023.

Financial markets remain extremely volatile which makes it difficult to accurately predict what an asset’s price will be in a few hours, and even harder to give long-term estimates. Moreover note, that analyst’s predictions can be wrong.

It is recommended to always do your own research and to consider the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decisions. Never invest more than you can afford to loose!

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