There is still a way to exceed $2,000 for gold prices, according to commodities analysts at French investment bank Societe Generale (SocGen). Even as the Fed continues to raise interest rates aggressively throughout the year.
Societe Generale: Gold prices to be $2,100
The bank released its latest commodity outlook on Wednesday. Analysts raised their gold price forecasts. They predict the precious metal will average around $2,100 by the third quarter of 2022. However, the bank predicts that prices will drop to $1,800 by the second quarter of next year. So this is likely to represent a high water sign for gold.
Analysts say that the most important factor dominating the gold market is real interest rates. In this context, they make the following statement:
We expect monetary and fiscal policy to tighten, though not as fast as inflation. That’s why we’re still supportive in the very near term.
The updated outlook comes as the Federal Reserve continues to raise interest rates aggressively to cool inflation. As you followed on Cryptokoin.com , the Fed increased its policy rate by 75 basis points at its Wednesday meeting. In addition, markets are pricing in a 100% probability of a 75 basis point increase in July.
“Geopolitical uncertainty will be supportive for gold prices”
However, SocGen is a safe haven for gold in the geopolitical uncertainty stemming from the Russian invasion of Ukraine. She says she will continue to support her charm. Finally, the French bank predicts that increased stock market volatility will push the gold price higher throughout the year.
On the other hand, gold is grinding 2.3% higher YTD as both stocks and bonds collapse. Analysts state that investors are moving away from stocks/bonds and increasing their gold holdings to diversify their risks.
According to SocGen, gold prices will fall next year
However, analysts note that higher gold prices will not be sustainable in the long run. The bank expects gold prices to drop to $1,600 by the end of next year as inflation pressures cool and geopolitical tensions begin to ease.
SocGen says inflation will stay hot
SocGen economists have raised their forecasts to 7.6% from 6.6%. This, combined with the Fed’s expected hikes, has created the perfect mix of negative real rates for gold. Economists forecast US 10-year nominal interest rates to average 3.25% in the third quarter. For this reason, they say that real interest rates should remain at deeply negative levels in the short term.
Investment demand will continue to drive gold prices. Analysts said they expect to see solid investor interest in gold-backed exchange-traded funds by 2022. The bank forecasts gold-backed ETFs to increase by 350 tons this year.
– Looking at inflation pressure, SogGen sees the potential for oil prices to rise up to $150 a barrel or even $200 a barrel. That’s why it remains hawkish about rising prices. Analysts add that these prices will not be sustainable and will eventually lead to demand destruction. In this context, they make the following statement:
Our forecast for oil for the third quarter is $130/barrel. Based on forward product cracks, the equivalent price per barrel is alarmingly close to $200/barrel. If our $150/barrel upside risk passes, it is possible for product prices to easily exceed this price level. However, this will certainly cause the demand for the product to disappear.
