Bomb Gold Forecast from the Analyst Saying “Beware of Mid-2022”!

Gold prices may be looking at sideways price action for the remainder of the year. The biggest test comes in mid-2022, when inflation begins to stabilize and markets absorb higher interest rates, according to DailyFX senior strategist Christopher Vecchio. The senior strategist’s assessments of the market outlook and gold forecasts cryptocoin.com We have prepared for our readers.

“I don’t have much faith in the rise of the gold price”

Pointing to a move in US Treasury rates, Christopher Vecchio says gold may already be running out after a rapid rally above $1,850:

I don’t have much faith in the rise of gold. Underlying fundamentals remain a major concern. We have seen US Treasury rates rise significantly at the beginning of 2022, both in nominal and real terms. Historically speaking, gold prices tend to fall when real interest rates rise. And in an environment characterized by tighter monetary policy throughout this year, real interest rates will continue to rise.

The strategist predicts that gold will close the year at $1,800. “I don’t see that gold has a higher way from here,” says Christopher Vecchio, noting that fiscal and monetary stimulus efforts are fading fast in the United States and other Western economies.

For example, the UK has already started austerity policy on the financial side. And the Bank of England looks set to go ahead with three or four increases this year. Here in the US, we find it increasingly unlikely that the Democratic Congress will reach consensus around a new fiscal stimulus scheme like the Build Back Better program.

Christopher Vecchio: These developments reduce the attractiveness of gold in the long run

The gold outlook looks fairly neutral, with tighter monetary policy and no significant fiscal spending forecast for the remainder of the year. The strategist underlines that as the midterm elections approach, it will be increasingly difficult to expect any major fiscal stimulus scenario from the USA and makes the following assessment:

If Republicans take back control of the House, of the Senate, we’re back to the situation we had in the early 2010s when Republicans had control of a Democrat in the White House and Congress. Gold prices peaked in 2011. Then it experienced a steady decline for about five or six years.

This environment encourages investors to sell gold during rallies, especially if the Fed manages to contain four decades of hyperinflation. The senior strategist predicts that inflation will stabilize by the end of the year, with the Fed continuing four rate hikes in March, June, September and December. The strategist does not exclude a scenario where inflation will return below 3% by the end of 2022:

As vaccine rates continue to rise and the more virulent strains of Covid are replaced by more manageable strains, consumers will shift their spending from goods to services. And as this spending shift occurs, supply chain bottlenecks will ease. By the end of 2022, it wouldn’t surprise me if headline inflation in the US is below 4%, perhaps even 3%.

This macro view of the strategist reduces the attractiveness of gold as a hedging instrument in the long run, as investors no longer seek safe havens and prefer assets with global growth conditions. Christopher Vecchio comments:

Gold is failing to recover in an environment where US government debt is increasing year by year and the Fed is pumping trillions of dollars into the markets. So why do it in the opposite environment, where we don’t have this fiscal incentive, where the Fed tightens and pulls its asset-buying program?

Strategist’s predictions for gold’s potential in 2022

Despite his long-term neutral view on gold, Christopher Vecchio says there is a chance of seeing $1,870 levels in the first quarter:

Market talk about a potential 50 basis point increase in March is misplaced. There is room for gold to continue rising as the market loosens these extreme expectations. So I expect a potential top near $1,860 before more selling starts.

“The markets get tense in the early stages of the Fed’s tightening cycle and this may be bad for stocks but good for precious metals,” said the strategist, and shares the following expectations for the periods of 2022:

It creates a good atmosphere here for the first quarter. But as we head towards the middle of the year, especially in the second half of the year, I think gold may indeed see its losses pile up.

Risks to the economic outlook that may affect gold prices

A possible upside price risk to Christopher Vecchio’s outlook is that the Fed started QT too early and fell into a policy trap. Expressing the three-stage process, “We first reduce QE, then move on to rate hikes and begin quantitative tightening in the last part of the rate hike cycle,” Christopher Vecchio said that the Fed’s doing all three in a very short time is significantly destabilizing in financial markets. states that it can be proven:

You can potentially have a knock-on effect where you see spikes in unemployment. The Fed is then forced into a policy error where you still have relatively high inflation measures in the very short term and unemployment rates rise again. That’s when stagflation fears begin to creep in.

The strategist calls this risk an unlikely one and thinks it would be a shock if the Fed moves forward with balance sheet reduction at any point in 2022. Another potential upside risk to the senior strategist’s gold outlook is a new strain of Covid that is proving as contagious as Omicron but more deadly than Omicron and causing more supply chain problems. Also, according to Christopher Vecchio, escalating geopolitical tensions between Russia and Ukraine or between China and Taiwan could trigger another rally for gold:

New lockdown restrictions on social activity will force people to spend more on goods than services. Any situation where global tensions will be more than just a war of words and we see boats on land or ships at sea is something that could increase demand for safe havens like gold and silver.

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