The Federal Reserve’s aggressive rate hikes fueled the dollar’s rally. This challenged the precious metal’s role as a safe place to park assets. Thus, gold prices are preparing to fall for the second year in a row in 2022. Analysts interpret the market and share their forecasts.
“Fed’s extreme rate hikes in 2022 undermine gold”
Markets expect the Fed’s fight against inflation to set the tone in precious metals markets next year. cryptocoin.comAs you follow in , the Russian invasion of Ukraine, rising inflation, Covid-19 restrictions and slowing growth have caused precious metals to have a mixed 2022.
Meanwhile, last year, in the early days of the Ukraine crisis, gold came very close to surpassing $2,000, the all-time highs it saw in 2020 as countries around the world went into lockdown. However, the US dollar has soared to 20-year highs this year as the Fed raises interest rates. That, in turn, eroded demand for dollar-priced gold, which has fallen by $250 since the March peak. Accordingly, Exinity chief market analyst Han Tan comments:
In light of the fact that gold is a zero-yielding asset, the precious metal’s traditional roles as a safe haven and hedge against inflation have been greatly undermined by the Fed’s extreme rate hikes in 2022.
“This is one of the reasons why we are predicting a rally for gold prices”
Meanwhile, top policymakers at the U.S. central bank have made their inflation-related intentions clear, surprising investors who have recently bet on a slower rate-raising trajectory. In this context, Julius Baer says in his 2023 commodity outlook, “We believe the US monetary policy outlook should remain in the driver’s seat for gold prices.” Kitco Metals senior analyst Jim Wyckoff comments:
The latest inflation data we’ve seen shows that prices are starting to cool a bit. This is encouraging for metal market bulls. It’s also one of the reasons we predicted the rally. Weak US dollar index supports prices. However, the increase in bond yields is limiting earnings.
“Gold prices will rise even higher if they break this resistance”
Analysts say the market mood in 2023 will be driven by the response of global central banks to bubbling inflation. This year, the Fed increased its near-zero interest rates in March to a range of 4.25%-4.5%. In this process, it realized the fastest rate hikes since the 1980s. So that also pushed gold down from its record high of over $2,000 in March. Vandana Bharti, vice president of commodity research at SMC Global Securities, said:
We expect gold to remain range-bound due to low market participation. Gold prices are likely to rise further if they break above the $1,840 resistance. It is possible that investment in gold ETFs will increase in 2023. Also, central banks are aggressively buying safe-haven gold. This is a sign that they do not trust the global economy very much.
“Fed slowdown has been a lifeline for gold prices”
Gold tumbled just 0.5% in 2022, recovering from its more than two-year low in September. Ilya Spivak, head of global macro at Tastytlive, comments:
For most of the year, gold was under pressure from a hawkish Fed. By the end of the year, however, it saw some recovery. It also found a lifeline on expectations that the Fed will slow down.
