We believe negative real rates could keep gold prices around $1,800/oz in the first half of 2022, despite reversing U.S. breakeven inflation. More downward pressure may be added after the Fed starts raising rates in mid-2022. Our target is for gold to end the year at $1,600/oz.
Comparing the current business cycle to previous ones, the inflation figures are much higher and look sticky. This should keep real interest rates in negative territory through 2022. The prospect of persistently higher inflation could boost hedging investments in gold in the near term, which could increase prospects for earlier rate hikes and faster tapering.
Indeed, with accelerated drawdowns and more than 3 rate hikes in 2022, the balance of risk in gold positioning remains up as geopolitical and virus risks may catalyze a repositioning
Sentiment in the precious metals remains broadly negative, as underscored by months of continued liquidation of ETF holdings. With inflation data expected to remain stubbornly high for the first few months of the year, markets could still get more aggressive pricing in Fed rate hikes, but we expect it to prove too hawkish in the end.
Comparing the current business cycle to previous ones, the inflation figures are much higher and look sticky. This should keep real interest rates in negative territory through 2022. The prospect of persistently higher inflation could boost hedging investments in gold in the near term, which could increase prospects for earlier rate hikes and faster tapering.
Indeed, with accelerated drawdowns and more than 3 rate hikes in 2022, the balance of risk in gold positioning remains up as geopolitical and virus risks may catalyze a repositioning
Sentiment in the precious metals remains broadly negative, as underscored by months of continued liquidation of ETF holdings. With inflation data expected to remain stubbornly high for the first few months of the year, markets could still get more aggressive pricing in Fed rate hikes, but we expect it to prove too hawkish in the end.