Will gold prices seesaw to $1,600 or $2,000 in 2022?

On Monday afternoon, the yellow metal was trading at $1,840, up 0.3 per cent



by

Waheed Abbas

Published: Mon 24 Jan 2022, 6:34 PM

Will gold shine or not this year?

With a number of factors such as rising interest rates, higher US treasury yields, a stronger dollar, less meaningful impact of Covid-19, recovery of the global economy and geopolitical tensions coming into play this year, predictions favour more of see-saw trade.

With so many important factors playing their role, economists see gold could slump to as low as $1,600 an ounce and rising as high as over $2,000 this year, depending on which factors have a prolonged influence on the safe-haven metal.

On Monday afternoon, the yellow metal was trading at $1,840, up 0.3 per cent. It has been trading around $1,800 level in 2022. Since the discovery of the much more transmissible Omicron variant, gold prices have oscillated between $1,870 and $1,770 an ounce.

Edward Bell, senior director for market economics at Emirates NBD Research, expects gold prices will fall in 2022 with an average price of $1,675 an ounce, a seven per cent drop on annual 2021 levels. For

According to Emirates NBD Research, gold is likely to trade around $1,750 in March, slipping further to $1,700 in June $1,650 in September and $1,600 in December, driven lower by rising interest rates, US Treasury yields and reduced impact of the pandemic on the global economy.

“As the economic impact of the Omicron variant of Covid-19 looks to be far less meaningful than initially feared, gold prices look unreasonably stable,” added Bell.

Vijay Valecha, chief investment officer, Century Financial, says gold finished four per cent lower last year despite inflation hitting the highest level in four decades in the US and it may face similar dynamics in 2022 as tightening from central banks, along with expectations of further dollar strength should mean investment demand for gold remains weak.

“Contrary to expectations, gold has gained this month even as central banks prepare to dial back stimulus and inflation-adjusted bond yields rise. Meanwhile, recent market volatility and geopolitical concerns surrounding Russia and Ukraine have boosted demand for the safe-haven gold,” he said.

Valecha added that stock market pullbacks will likely sustain the hedging demand for gold, while jewellery and central bank gold demand may provide additional longer-term support.

“Technically, $1,900-$1,920 zone will continue to act resistance and only a sustained move above those levels will enable the bulls to target the $2,000 mark. Meanwhile, strong support is seen near $1,680 levels. For the year, the metal is expected to remain range-bound between $1700-$1900. Of course, it goes without saying, the course of the pandemic will remain a potential risk factor, be it upside or downside,” added Valecha.

Roberto d’Ambrosio, CEO of Axiory Global, said inflation pressure will persist along with the negative sentiment on risky assets, so the gold is set to test three important price areas $1,900-$1,905 in the short term and $1,955-60 in the mid-term.

“If the global economic situation worsens even more, maybe as a consequence of the mounting geopolitical tensions, gold might even test the $2,000-$2,040 level as it did in July 2020,” he added.

Axiory Global CEO said given the exposed view on the economy and financial markets in 2022, the price might hoover between $1,900 and $1,750, before a breakout to the upside which might happen in Q2 or Q3.

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According to d’Ambrosio, the main drivers for gold will be linked to the inflation trend worldwide, the price of energy commodities, the economic sentiment in financial Markets of risky assets, the geopolitical tension which is rising with Russia and China.

“All of these are set to drive gold prices higher, as a hedge against uncertainty and inflation. Central Banks might choose an aggressive stance to limit inflationary pressures by aggressively raising interest rates, but that would push for a wider shift from risk assets, namely stocks, driving cash towards gold and bonds. The situation will take time to be addressed and there is no easy quick fix, which again is good news for gold,” he concluded.

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