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  • by Smriti Mathur
  • Nov 08, 2022
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Gold Price Forecast For 2022 And Beyond: Will The dollar Keep It Down?

 

The conflicting consequences of chronically strong inflation and central banks boosting interest rates in response have driven the gold market story. 

With the US dollar (USD) lately reaching multi-year highs and Treasury yields over 4.2%, gold prices fell to roughly $1,680 per ounce, as the US Federal Reserve (Fed) appears ready to continue raising interest rates.

Following the FOMC meeting on September 21, Fed chair Jerome Powell announced, "Today, the FOMC raised its policy interest rate by three-quarters of a percentage point, and we anticipate that ongoing increases will be appropriate."

Gold prices have fallen by more than 10% this year, and are now close to 20% below the $2,000 level observed in early March.

A higher US dollar has added to the commodity's downward momentum in recent months, but the underlying reason for most experts' lack of an optimistic longer-term outlook on gold - rising US Treasury yields - remains intact.

 

Gold Price Predictions From Experts

Given the current macroeconomic and geopolitical context, what are the prospects for the gold market for the rest of the year? Should you buy gold right now? 

Here the most recent drivers and gold price forecasts from commodities professionals are discussed in detail.

 

GOLD VS USD CHART

Source: Capital.com

 

As markets reopened after the Fourth of July holiday in the United States, the gold price fell below $1,800 for the first time since early February. Gold trades in the opposite direction of the US dollar because it gets more expensive for buyers using other currencies and does not yield interest.

 

The metal continued to fall into mid-July, marking the longest losing streak for gold since November 2020, as new signals of increasing inflation fueled speculation that the Fed will adopt even more severe measures to curb price rises.

The metal came back for moderate gains, but on September 14, 2022, spot gold prices fell to $1,700 per ounce, the lowest level in more than two years.

Gold was trading at $1,668 per ounce on October 26, 2022. The gold price has been heavily influenced by a stronger US dollar index (DXY), as the Fed hiked interest rates by 75 basis points (bps) for the third time in a row at its September meeting.

 

The dollar has benefited from the uncertain macroeconomic climate, with investors selling other assets in favour of holding dollars due to fears about high inflation, the potential of recession, slowing growth in China, and the impact of the Russia-Ukraine war.

On September 28, the DXY, which measures the performance of the dollar versus a basket of other currencies, reached 114.68, its highest level since April 2002.

In mid-June 2022, Bob Haberkorn, senior market strategist at RJO Futures, detailed the market dynamics to Bloomberg:

 

“Gold competes against the bond markets as a safe haven... a potential rate hike of 75 to 100 basis points by the [Federal Reserve] might make the bond market a little more attractive to safe-haven buyers than the gold market would normally be.”

 

As the Russia-Ukraine conflict progressed, gold reached a high of $2,043.30 on March 8, up 13.5% from the $1,800 level set at the start of the year. That came close to the all-time high in dollar terms (over $2,070) seen in August 2020, and a new record in euro terms.

So far in 2022, the Fed has raised interest rates five times. It imposed a 25 basis point increase in mid-March, a 50 basis point increase on 4 May, and three 75 basis point increases on 15 June, 22 July, and 21 September.

 

After Consumer Price Index (CPI) statistics released on October 13 showed that underlying inflation is continuing to rise, the US central bank is likely to hike borrowing prices faster and further than previously expected. According to the US Bureau of Labor Statistics, the CPI gained 0.4% on a seasonally adjusted basis in September, representing an 8.2% year-on-year increase (YOY).

 

The Consumer Price Index (CPI) is the most widely used measure of inflation, calculating the percentage change in the price of a basket of goods and services used by households.

 

"Markets underappreciate exactly how entrenched US inflation has become and the magnitude of response that would likely be necessary from the Fed to dislodge it," Nomura economists wrote in a note cited by Reuters.

 

According to Nomura analysts, a 100bp rate hike is the most likely conclusion, with the Fed needing to raise its policy rate to 4.5% to 4.75% by February 2023. Notably, Nomura predicted a 100bp increase in July, which proved to be incorrect.

The central bank has shown no signs of changing its present policy course. In a press conference on September 21, Federal Reserve Chair Jerome Powell reiterated the Fed's "strong commitment to returning inflation to [their] 2% target."

Powell's statement looked to be a strong indication of the Fed's intention to rein in runaway inflation in the United States, strengthening the dollar versus most major rivals and dampening market enthusiasm for gold. 

A recession would be beneficial to gold prices, but the sharp increase in interest rates used to combat inflation has so far limited the precious metal's upside.

 

According to the German business Heraeus: 

"A recession is not always bad news for gold." Precious metal values, especially gold, typically fall during recessions. The gold price did fall (by 6%) during the 1980 recession, but it was partially because it had just reached a record price at the start of 1980 and the Fed had finally raised interest rates above inflation.

 

"However, in succeeding recessions, the gold price fell less and rebounded faster than other metals." The price of gold tends to be slightly higher near the end of a recession than at the beginning."

 

The World Gold Council, the gold industry's market development organisation, recently stated that the commodity will face two major headwinds. The following negative factors could put downward pressure on gold, according to the council's mid-year gold outlook:

  • Increased nominal interest rates
  • A possibly stronger dollar

 

Nevertheless, the council stated that the potential negative effects of the aforementioned elements may be mitigated by other, more helpful factors, such as:

  • Inflation is high and persistent, with gold lagging behind other commodities.
  • Market volatility is associated with changes in monetary policy and geopolitics.
  • The requirement for adequate hedges to compensate for potentially greater correlations between equities and bonds.

 

How will gold trade for the rest of the year and in the long run? Let's take a look at the most recent analyst forecasts and pricing projections.

 

From a technical standpoint

Market strategist Justin McQueen shared his thoughts on the probable price range. He also listed many levels of support and opposition to bear in mind:

●      Support

  • $1,615 (2022 low) (2022 low)
  • $1,584 (Fib level) (Fib level)
  • $1,485 (Fed QE infinity point)

 

●      Resistance

  • $1,760 (50% fib of 2020)
  • $1,715 (55dma) (55dma)
  • $1,685 (2021 lows) (2021 lows)

 

Analyst Piero Cingari alluded to seasonal trends that could strengthen the gold price before the end of the year:

"When looking over the last 50 years of data, the precious metal has produced a 1.6% average return in January." The month of December has the highest seasonality (+1.5%), followed by May (+1.3%) and September (+1.2%). Gold prices are expected to offer positive returns in December and January at 59% and 55%, respectively, sustaining the strong seasonal tendency in these months. December and January are strong months for gold due to cultural considerations underlying the Indian wedding season."

 

"If price movement remains favourable in the next sessions, the MACD [Moving Average Convergence Divergence] may make a bullish crossover below the zero line." When this happened earlier this year, it gave the precious metal some short-term breathing room.

"However, the 50-day moving average, which is around $1,746 provides significant dynamic resistance." This zone is close to the bearish trendline from the March highs, which was met with strong selling pressure when it was crossed in mid-August.

 

"Breaking through the $1,750 barrier will remain the primary resistance for gold prices in the immediate run." To materially reverse the big negative trend, gold prices must forcefully clear the 50% Fibonacci retracement line (2022 low to high), which also lies at June's highs."

 "If price movement remains favourable in the next sessions, the MACD [Moving Average Convergence Divergence] may make a bullish crossover below the zero line." When this happened earlier this year, it gave the precious metal some short-term breathing room.

 

"However, the 50-day moving average, which is around $1,746 provides significant dynamic resistance." This zone is close to the bearish trendline from the March highs, which was met with strong selling pressure when it was crossed in mid-August.

"Breaking through the $1,750 barrier will remain the primary resistance for gold prices in the immediate run." To materially reverse the big negative trend, gold prices must forcefully clear the 50% Fibonacci retracement line (2022 low to high), which also lies at June's highs."

 

Analyst forecasts

In its Precious Metals Appraisal on 10 October, analysts at German technology business Heraeus presented their thoughts on gold's prospective future:

 

"Year-to-date returns on gold in pounds sterling are 11.4%, 7.5% in euros, and 18.3% in yen." In comparison, the S&P 500 has fallen more than 20% since January. Despite gold's outperformance, precious metal investment vehicles have seen considerable withdrawals in the majority of locations as safe-haven demand has waned. More than 7 Mos [million troy ounces] have been pulled from gold-backed ETFs globally year to date. As the Fed continues to boost interest rates, the gold price is projected to remain low in Q4 2022. As a result, ETF outflows are expected to persist."

 

Citibank, based in the United States, is optimistic about the gold price in 2022. On July 4, the bank's analysts said in their monthly market outlook:

 "Gold markets are unlikely to warn financial markets of an impending recession." Whereas interest rates, inflation, and foreign exchange rates are all influenced by commodity prices (for example, crude oil), gold prices are reactive. However, gold's recent negative performance contrasts with mean or median annualised returns preceding large US economic declines over the last four decades.

 

"Citi maintains a Q3 2022 gold price projection of $1,845/oz, with a low of $1,750/oz in Q1 2023 and a recovery to $2,000/oz in 2024." If the United States enters a recession sooner rather than later, gold prices may rise sooner."

 

The algorithm-based forecasting website Wallet Investor was slightly gloomy in its short-term estimates as of October 26th, stating that the gold price could end 2022 at $1,626.80, a 2.5% reduction from the present price. The platform was more optimistic about the precious metal's long-term prospects, with its gold price projection for 2025 predicting a rise to $1,951.35 in December of that year.

 

The five-year gold price estimate on the website predicted an average price of $2,166.36 by October 2027.

Gov Capital's algorithm-based gold price forecast was relatively bullish in the short run, expecting the commodity may end 2022 at $1,694.85. However, it was unusually bullish in its long-term estimate, projecting a price increase of almost $1,000 to $2,958.51 by the end of 2023. It forecasted a gold price of $6,616.33 per ounce at the end of the year in 2025.

 

TradingEconomics predicted that gold will trade at $1,638.12 by the conclusion of the third quarter. According to the website's macro models and analysts' forecasts, the price of the precious metal will decline to $1,582.28 in a year. 

No expert or algorithm-based website forecasted gold prices for 2030.

When making gold price forecasts for 2022, take in mind that considerable market volatility makes producing accurate long-term estimations challenging. As a result, analysts and algorithm-based forecasters can and do make incorrect predictions.

 

We always urge that you conduct your own study. Before making any investment decision, consider the most recent market trends, news, technical and fundamental analysis, and expert opinion. Remember that previous performance is no guarantee of future returns, and you should never invest money that you cannot afford to lose.

 

Remarking Points 

Several investors may want to preserve some gold exposure in their portfolio for diversity and as a hedge against a decline in stocks and bonds. Nevertheless, whether gold is a good investment for you depends on your risk tolerance, market forecast, and whether you expect it to rise or decrease further, among other things.

Do your own research and keep in mind that past performance is no guarantee of future results. Never put money into an investment that you cannot afford to lose. 

The gold price's forecast will most likely be determined by how geopolitical tensions evolve and how monetary tightening affects the global economy, among other things.

Take into account that researchers can and do make incorrect predictions. To make informed trading selections, you should conduct your own research, keeping in mind that past performance is no guarantee of future returns.

 Now if you are thinking of whether to invest in gold or not then here is the insight. It totally depends on the perspective you hold on the commodity. You must develop your own assumptions about how gold will fare in the following years. Remember that past success does not guarantee future results, and never invest or trade money that you cannot afford to lose.

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