Increasing inflationary pressures and geopolitical turmoil create uncertainty in global financial markets. On the other hand, this environment helped the gold market to withstand the aggressive increase in US interest rates. However, rising real interest rates ultimately dominated investor sentiment, according to three precious metals analysts. Therefore, gold prices seem to close the year lower.
“We will see that the long-term interest in gold begins to dissipate”
A webinar was held last week at the London Bullion Market Association, HSBC Securities. Precious Metals Principal Analyst James Steel, Rhona O’Connell of StoneX Financial Ltd and Suki Cooper of HSBC Securities attended the seminar. Chartered presented its macroeconomic outlook for the gold market for the remainder of 2022.
Prices are likely to rise in the near term. However, three market analysts predict lower prices by the end of the year. Therefore, they were relatively pessimistic about gold prices. Suki Cooper predicts that the gold price will drop to $1,750 in the fourth quarter. The analyst makes the following assessment of his forecast:
We must begin to see the impact of rising real interest rates on demand. Eventually, we’ll start to see its inflation come down. Then we’ll see some of this long-term interest in gold start to dissipate.
“Fed tightening and a solid dollar will weigh on gold prices”
James Steel reiterates his company’s forecast that gold prices will fall below $1,800 in the second half of the year. It also shares its forecast for the yearly average of $1,820. He says gold won’t just struggle as real interest rates rise. He also notes that he expects the US dollar to stay higher and create a second headwind for the precious metal. In addition, the analyst makes the following statement:
Continuing Fed tightening and a relatively solid dollar will be two weights that gold will have a hard time dealing with.
However, James Steel adds that he has not seen a complete collapse in gold prices. He says it will provide some support below its safe-haven demand and its role as an important diversification tool, due to increased geopolitical risk.
“Above $2,000 for gold prices is tough, but…”
Rhona O’Connell predicts lower prices for gold. However, she states that any drop below $1,800 could generate strong buy signals. She also says that prices can continue to be supported at current levels, she says.
O’Connell adds that any significant fall in gold prices could lead to renewed demand for traditionally price-sensitive physical bullion. He also states that Chinese consumers may once again become active gold buyers. The analyst evaluates the outlook as follows:
Covid-19 restrictions in China have significantly reduced gold purchases. This means that there are a lot of pent-up requests waiting to be released. It’s hard to see gold prices rise above $2,000. But I’m not as bearish as Suki and Jim
If central banks start selling their gold!
One scenario that Rhona O’Connell watches closely is that the central bank has foreign reserve assets. He notes that rising interest rates have brought emerging market economies closer to recession. She also states that countries may begin to increase their gold reserves to support their currencies.
However, he adds that if nations are forced to sell their gold, it will be a significant downside for the precious metal.
Recession risk rises as central banks tighten
Meanwhile, central banks around the world continue to tighten their monetary policies. This is why for many analysts there is a growing threat of a global recession. cryptocoin.comAs you follow, the Federal Reserve is leading aggressive action.
Last week, the Fed increased interest rates by 75 basis points to ease inflation pressures. This is the biggest move the Federal Reserve has made in 28 years, and it may not be the last. Fed Chairman Jerome Powell said the central bank could raise interest rates by 75 basis points again in July.
In addition, the Fed has signaled that interest rates will rise to around 3.5% by the end of the year. Powell said at a press conference that inflation continues to be the biggest threat to the US economy.
