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Gold may hit $2,500 as output peaks

Gold is looking for a breakout rally towards new record highs. — Wam file photo
Gold is looking for a breakout rally towards new record highs. — Wam file photo

By the year-end, Wells Fargo expects to see gold between $2,000 and $2,100.


Issac John

Published: Wed 16 Feb 2022, 5:30 PM

Last updated: Wed 16 Feb 2022, 5:32 PM

Gold can go from one of the worst-performing assets last year to one of the best in 2022 as some of its main obstacles dissipate and the global output of the yellow metal has just peaked, precious metals analysts forecast.

After finishing the year down 3.6 per cent, the worst drop since 2015, gold is looking for a breakout rally towards new record highs, Wells Fargo said in its updated gold price outlook.

Wells Fargo investment strategy analyst Austin Pickle said some of the top headwinds to gold prices last year were massive risk-on sentiment in the US stock market, higher US dollar, and the idea that elevated inflation was transitory.

Gold has been used as a hedge against inflation, which is why, as prices are already rising at 2.5 per cent, it is surprising that the price of the precious metal has been flat for much of this year after a sharp rise in the summer of 2020.

Over the past year, gold has fallen in price by 16 per cent – to below $1,768 per ounce.

By the year-end, Wells Fargo expects to see gold between $2,000 and $2,100.

“Risks remain, including the possibility of increasing interest rates. Yet, if gold were to breach the technically and psychologically important $1,900 level, we would expect 2022 to be a very good year for gold. Our 2022 year-end gold target is $2,000-$2,100 per ounce,” Pickle noted.

Ian Telfer, former chairman of Goldcorp, believes the gold mining industry has already hit the maximum output of gold production, described as the “Peak gold” scenario.

“I think we have reached peak gold. I think that anything below $3,000 an ounce we have found most of the gold we’re going to find, maybe all the gold we’re going to find. If you look at the exploration successes over the last 20 years, they’ve been declining steadily for that period of time and it’s not because people haven’t spent money or they don’t want to find gold, it’s because, I think, all the deposits that can make money below $3,000 have been found,” Telfer was quoted as saying in an interview.

Telfer said that even at current price levels, mergers and acquisitions would be profitable, but he projects the gold price to go even higher. His outlook for gold is “$2,400, $2,500” an ounce.

“I’d say we’re at peak gold and for that reason, I think the price of gold is going to do extremely well going forward,” he said.

Precious metal analysts said there were some sizable 2021 gold headwinds in play, with the more significant including a blistering risk-on rally with little volatility, a strengthening US dollar, and real interest rates that found their bottom.

“One could also throw onto the pile inflation that was assumed to be transitory for much of the year, surging cryptocurrency prices, and increasingly optimistic investors and economic outlooks,” Pickle said.

However, one of the major shifts this year is the idea that risk assets returns will now be limited or even in danger, with the US stock market already looking a lot more cautious after a January rout.

“Risk asset returns may be choppier with higher volatility this year, which could prompt a rotation back into the perceived safe-haven — gold. The bull commodity supercycle should lend its support as well, as it is the tide that lifts all commodity boats,” Pickle highlighted.

On top of that, Wells Fargo’s US dollar outlook suggests that the greenback’s pressure on gold will let up in 2022. “And our range-bound US dollar outlook suggests that the greenback will cease to be such a stiff headwind this year,” Pickle said.

These macroeconomic changes are likely to encourage more gold buying throughout the year, according to the outlook. — issacjohn@khaleejtimes.com

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